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I^art,  &c|)afftt£r  &  ;Plarj; 
Pd|e  Economic  Csteapct 


THE  CAUSE  AND  EXTENT  OF  THE  RECENT  INDUS- 
TRIAL PROGRESS  OF  GERMANY.    By  Earl  D.  Howard. 

THE  CAUSES  OF  THE  PANIC  OF  1893.  By  William  J. 
Laack. 

INDUSTRIAL    EDUCATION.     By  Harlow  Stafford  Person, 
Ph.D. 

FEDERAL  REGULATION  OF  RAILWAY  RATES.  By  Al- 
bert  N.  Merritt,  Ph.D. 

SHIP  SUBSIDIES.  An  Economic  Study  of  the  Policy  of  Sub- 
sidizing Merchant  Marines.     By  Walter  T.  Dunmore. 

SOCIALISM:  A  CRITICAL  ANALYSIS.     By  O.  D.  Skelton. 

INDUSTRIAL  ACCIDENTS  AND  THEIR  COMPENSATION. 
By  Gilbert  L.  Campbell,  B.  S. 

THE  STANDARD  OF  LIVING  AMONG  THE  INDUSTRIAL 
PEOPLE  OF   AMERICA.     By  Frank  H.  Streightoff. 

THE    NAVIGABLE   RHINE.    By  Edwin  J.  Clapp. 

HISTORY  AND  ORGANIZATION  OF  CRIMINAL  STATIS- 
TICS IN  THE  UNITED  STATES.  By  Loms  Newton 
Robinson. 

SOCIAL  VALUE.    By  B.  M.  Anderson,  Jr. 

FREIGHT  CLASSIFICATION.     By  J.  F.  Strombeck. 

WATERV/AYS  VERSUS  RAILWAYS.  By  Harold  Glenn 
Moulton. 

THE  VALUE  OF  ORGANIZED  SPECULATION.  By  Harri- 
son H.  Brace. 

INDUSTRIAL  EDUCATION:  ITS  PROBLEMS,  METHODS 
AND  DANGERS.     By  Albert  H.  Leake. 

THE  UNITED  STATES  INTERNAL  TAX  HISTORY  FROM 
I  86 1  TO  I  87  I .     By  Harry  Edwin  Smith. 

WELFARE  AS  AN  ECONOMIC  QUANTITY.  By  G.  P.  Wat- 
kins. 

CONCILIATION  AND  ARBITRATION  IN  THE  COAL  IN- 
DUSTRY  IN  THE  UNITED  STATES.  By  Arthur  E.  Suf- 
fem. 

THE  CANADIAN  IRON  AND  STEEL  INDUSTRY.  By  W.  J. 
A.  Donald. 

THE  TIN  PLATE  INDUSTRY.     By  D.  E.  Dunbar. 

THE  MEANS  AND  METHODS   OF  AGRICULTURAL  EDU- 
CATION.    By  Albert  H.  Leake. 
THE  TAXATION  OF  LAND  VALUE.    By  Yetto  SchefteL 

HOUGHTON  MIFFLIN  COMPANY 
Boston  and  New  York 


WjCKxt,  ^c^affnet:  &  (TUarx  Qprij^  <&bbci^9 

XXII 

THE  TAXATION  OF  LAND  VALUE 


THE 
TAXATION  OF  LAKD  VALUE 

A  STUDY  OF  CERTAIN  DISCRIMINATORY 
TAXES  ON  LAND 


By  YETTA  SCHEFTEL 


BOSTON  AND  NEW  YORK 

HOUGHTON  MIFFLIN  COMPANY 

(tlie  Slitiecjeiitie  pce^tf  Cambcibsc 

1916 


85T82 


COPYRIGHT,   1916,  BY  BART,  SCHAFFN£R  «  MARX 
ALL  RXOKTS  RESSRVBD 

Publisktd  Dectmber  iQtb 


(^ 
^ 
t 
^ 

^ 


531 


TO 

PROFESSOR  ROBERT  F.  HOXIE 

FROM  WHOSE   BIOH  STANDARD 

OF  SCIENTIFIC   BESEABCU  Ain>  KKEN  CBITICI8M 

THE   WBITBK  DKKIVED  INESTIMABLE  PBOFIT 

AND  INSPIBATION 


PREFACE 

This  series  of  books  owes  its  existence  to  the  generosity 
of  Messrs.  Hart,  Schaffner  &  Marx,  of  Chicago,  who  have 
shown  a  special  interest  in  trying  to  draw  the  attention  of 
American  youth  to  the  study  of  economic  and  commercial 
subjects.  For  this  purpose  they  have  delegated  to  the  un- 
dersigned committee  the  task  of  selecting  or  approving  of 
topics,  making  announcements,  and  awarding  prizes  an- 
nually for  those  who  wish  to  compete. 

For  the  year  ending  June  1, 1915,  there  were  offered:  — 

In  Class  A,  which  included  any  American  without  re- 
striction, a  first  prize  of  $1000,  and  a  second  prize  of  $500. 

In  Class  B,  which  included  any  who  were  at  the  time 
undergraduates  of  an  American  college,  a  first  prize  of 
$300,  and  a  second  prize  of  $200. 

Any  essay  submitted  in  Class  B,  if  deemed  of  sufficient 
merit,  could  receive  a  prize  in  Class  A. 
K  The  present  volume,  submitted  in  Class  A,  was  awarded 

first  prize  in  that  class. 

J.  Lauhence  Laughun,  Chairman, 

University  qf  Chicago, 
J.  B.  Clark, 

Columbia  University. 
Henet  C.  Adams, 

University  of  Michigan. 
Horace  White, 

New  York  City. 
Edwin  F.  Gay, 

Harvard  University. 


^. 


CONTENTS 

CHAPTER  I 

THE  TAX  ON  LAND  VALUE 

§Ljntroduction:  The  Problem  of  Local  Revenue 1 

f^JTNature  of  the  Tax  —  Purpose  of  this  Study'      ....  8 

S    S^efinition  of  the  Tax 4 

j-^iTDifferent  Forms  of  the  Tax 7 

\'o.  The  Tax  on  Value  Increment 0 

§    6.  The  Tax  distinguished  from  other  Land  Taxes     .      .      .      .11 

§    7.  The  Tax  on  Selling  Value 14 

§    8^  Relation  to  the  Single  Tax 15 

§  '^  Coimtries  where  the  Tax  is  in  Operation 17 

\  10.  Sunmuiry 18 


CHAPTER  n 

LAND  TAXES  IN  AUSTRALASIA 

§    1.  Introductory :  The  Character  of  the  Colonies       ....  Id 

§    2.  Settlement  and  Land  Tenure 20 

§    3.  The  Chief  Causes  of  the  Enactment  of  the  Land  Taxes  — 

Landed  Monopoly  and  Absenteeism     .      .      .      .      .      .23 

§    4.  Fiscal  Needs  —  the  Occasion  for  the  Adoption  of  the  Land 

Taxes 26 

§    5.  Causes  of  the  Enactment  of  Local  Rating  on  the  Unimproved 

Value 28 

%   6.  Influence  of  the  Single  Tax  Propaganda 31 

\   7.  The  Land  Tax  in  the  Fiscal  Systems  of  the  Colonies  —  Its 

Prevalence 34 

%   8.  Legislation  in  New  Zealand :  Rates  of  Tax,  Methods  of  Assess- 
ment and  Levy 30 

§    9.  Rates  of  Tax  and  Methods  of  Assessment  in  the  Common- 
wealth of  Aiistralia 41 

§  10.  Historical  Development  of  the  Land  Taxes  in  Australia  .      .  44 

§  11.  The  System  of  Local  Rates  in  Queensland 48 

§  12.  Local  Option  on  Rating  in  New  Zealand 50 

§  13.  Local  Taxation  in  New  South  Wales 53 

§  14.  The  Federal  Land  Tax:  Rates  of  Tax,  Methods  of  Assessment 

and  Levy 55 

S 15.  Summary 59 


X  CONTENTS 

CHAPTER  m 

AND  TAXES  IN  AUSTRALASIA  {concl%ided) 

§    1.  Importance  and  Difficulty  of  Accurate  Valuation  of  the  Land 

minus  Improvements  —  System  in  Australasia        ...     61 

§    2.  General  Administration  of  the  Taxes 62 

§    8.  Methods  of  Land  Appraisal         . 67 

§    4.  Definitions  of  "Capital  Value,"  "Unimproved  Value,"  the 
"Value  of  Improvement,"  and  "Improvements"  to  guide 

Valuers 69 

§  6.  Summary:  Efficacy  of  the  Methods  of  Valuation  ...  75 
§    6.  Fiscal  Considerations:  The  Incompatibility  between  the  Fiscal 

and  Social  Interests  in  Taxation 78 

§    7.  The  State  Taxes  considered  Fiscally 79 

§   8.  Fiscal  Results  of  the  Commonwealth  Tax 83 

§    9.  The  Local  Taxes  considered  Fiscally 88 

§  10.  Summary  of  Fiscal  Considerations  of  Tax 95 

§  11.  Effect  of  the  Taxes  on  the  Disintegration  of  the  Large  Land- 
holdings    96 

§  12.  Causes  of  the  Inefficacy  of  the  Taxes  in  Work  of  Disintegra- 
tion     99 

§  13.  Discriminatory  Feature  helped  by  Liberal  Exemptions  from 

Taxation 103 

§  14.  Social    and    Economic    Effects    Shght    and    Difficult    to 

Trace 105 

§  15.  Simamary  of  Effects  on  Building  Trade,  Speculation,  Rent  — 

Incidence  of  the  Taxes 106 

CHAPTER  IV 

THE  TAX  ON  VALUE  INCREMENT  IN  GERMANY 

§  1.  Introduction:  The  System  of  Local  Taxation  in  Germany  .  121 
§  2.  Reform  of  1893  in  Prussia  affecting  Local  Taxation  .  .  .124 
§    3.  The    "Umsatzsteuer"     as    Precursor    of    the    Increment 

Tax 125 

§    4.  "Steuer  nach  dem  gemeinen  Wert"  replacing  the  Land  Taxes 

on  Rental  and  Product 128 

§    5.  Characteristics  of  the  Increment  Tax 129 

§    6.  Analysis  of  the  Frankfurt  Ordinance  showing  the  Relation  of 

the  Increment  to  the  Land  Transfer  Tax 132 

§    7.  Principle  of  "Unearned  Increment"  as  Underlying  Tax  — 
Origin  of  Concept  in  Phenomenal  Development  of  German 
Cities  —  Speculation  and  Housing  Problem    .      .      .      .134 
§    8.  "Sozialpolitik"   and  Restriction  of   Private  Land  Owner- 
ship    138 

§   9.  Theory  of  Benefit  inapplicable  to  German  Tax  .      .      .      .141 


CONTENTS 


xt 


510.  Influence  of  the  "Bodenreform"  Movement 143 

5  11.  History  of  the  Enactment  of  the  Increment  Tax  Laws  —  Im- 
perial Tax  of  1911 144 

§  12.  Methods  of  Assessment  and  Levy 146 

§  13.  Explanation  and  Interpretation  of  Method 148 

§  14.  Exemptions:  their  Purpose 162 

S  15.  Progressive  Scale  of  Rates 155 

§  16.  Division  of  Proceeds  of  Tax  among  the  Imperial,  State,  and 

Local  Governments 158 

§  17.  Administration  of  Tax 160 

§  18.  The  Local  Taxes:  Various  Methods  of  Assessment  and  of  deal- 
ing with  Retroactive  Feature 163 

§  19.  Rates,  Exemptions,  Reductions,    in   Local   Ordinances  .      .  165 

§  20.  Fiscal  Returns  from  Local  Taxes 173 

§  21.  Status  of  Localities  to  Tax  since  the  Amendment  of  the 

"Reichzuwachssteuer"  in  1913 176 

§  22.  Fiscal,  Social,  and  Economic  Effects 177 

§  23.  Taxation  of  Land  in  Kiao-chau:  Causes  of  Introduction  of 

Tax  —  "  Sozialpolitik, "  not  Taxation 184 

§  24.  Taxation  Provisions 185 

§  25.  Effects  and  Proceeds  of  Tax 187 


CHAPTER  V 
THE  ENGLISH  LAND-VALUE  DUTIES 

§    1.  Underestimation  of  the  Fiscal  Aspect  of  the  Land- Value 

Duties  —  Landlordism  and  Land  Taxation  ....  190 
§    2.  Movement  toward  Land- Value  Taxation  —  Legislation  and 

Reports  on  the  Expediency  of  Tax  for  Local  Purposes,  1884- 

1906 <       .  196 

§  8.  Continued  Agitation  and  Legislation,  1906-10  ....  201 
§    4.  Opposition  of  Lords  the  Direct  Cause  of  the  Incorporation  of 

Duties  in  the  Budget 205 

§    5.  Social  Reform  the  Dominating  Motive  of  the  New  Taxes  — 

Forms  of  Taxes  a  Proof 207 

§    6.  Introduction  to  Analysis  of  the  Four  Duties        ....  210 

§    7.  Value-Increment  Duty 211 

§    8.  Reversion  Duty 217 

§    9.  Undeveloped  Land  Duty 222 

§  10.  Mineral-Rights  Duty  —  Causes  and  Probable  Effects  of  the 

Changed  Scheme  for  Taxing  Minerals 227 

§  11.  Analysis  of  System  finally  adopted    .      .      .      .  -    .      .      .  230 

§  12.  Administration  and  Valuation 283 

§  13.  Actual  Progress  made  in  Valuation  —  Provisions  with  Regard 

to  Appeal  —  Test  Cases 238 

S  14.  Fiscal  Effects 244 

S  15.  Economic  Effects 247 


zii  CONTENTS 

CHAPTER  VI  ; 

MUNICIPAL  TAXATION  IN  WESTERN  CANADA 

§    1.  Local   Taxation  in  Canada  explained   from  the  Standpoint 

of  Fiscal  Expediency 251 

§  2.  Economic  and  Social  Conditions  compared  with  those  in  Aus- 
tralasia—  Increase  in  Population  and  Land  Value        .       .252 

§  3.  The  Wild-Land  Tax  of  British  Columbia,  the  First  Land- 
Value  Tax  levied  in  Canada  —  Wild-Land  and  Increment 
Tax  in  Alberta 258 

S  4.  Option  of  exempting  improvements  from  Taxation  granted 
the  Local  Authorities  —  Later  made  Compulsory  in  Alberta 
and  in  the  Rural  Municipalities  of  Saskatchewan    .      .      .261 

§    5.  Causes  of  the  Introduction  of  the  Tax 266 

§    6.  Prevalence  and  Natm-e  of  "Smgle  Tax"  System   .      .       .      .269 

§    7.  Administration  of  the  Tax  —  Special  Provisions  with  regard 

to  Assessment 273 

S  8.  Fiscal  Expediency  of  Tax  due  to  Unusually  Favorable  Condi- 
tions of  Rising  Land  Value 277 

§    9.  Working  of  System  in  Times  of  Business  Depression  —  In 

Static  Communities 284 

§  10.  Incidence  of  the  Land  Tax 290 

§  11.  Economic  and  Social  Effects  DifBcuIt  to  Trace  —  Effect  on 

Building  Trade 291 

S  12.  Economic  Results  offset  by  other  Influences  —  Speculation 

in  Land  —  Wages 296 

§  IS.  Possibility  of  Extension  of  System  in  Eastern  Canada    .      .  299 


CHAPTER  Vn 

THE  TAX  IN  ITS  FISCAL  ASPECT 

S    1.  General  Summary  of  the  Various  Forms  and  Purposes  of  the 

Tax S02 

§    2.  The  Tax  classified  — A  Form  of  Realty  Tax  — Both  Sub- 
sidiary and  Single 804 

§    8.  Levied  by  Local,  State,  or  National  Government  according 

to  Purpose  and  Form 305 

§    4.  Fiscal  Principles  of  Tax  —  Theory  of  Incidence    ....  308 
§   5.  Incidence  complicated  by  Effects  of  Tax  on  Building  Opera- 
tions          311 

§    6.  Principle  of  "Amortization" 815 

§  7.  Difficulties  involved  in  Taxing  the  Capital  Value  of  Realty  .  317 
§  8.  Capital  versus  Rental  as  Basis  of  Assessment  ....  320 
§    9.  Tested   by   Canons   of   Taxation  —  Canon  of   Justice   not 

strictly  applicable  to  Tax         .      , 322 


CONTENTS  xia 

§  10.  Expediency  in  Taxation  —  Fiscal  cersiu  Socio-Political 
Theory  —  Progressive  Rate  as  Criterion  of  Taxation  for 
Reform  Purposes 824 

§  11.  Productiveness  of  Tax  —  Convenience  and  Certainty  —  Dis- 
crimination —  Freedom  from  Evil  Effects         ....  827 

§  12.  Administration  of  Tax  —  Separate  Valuation  of  Land  and 
Improvements  —  DiflGiculties  of  Making  Accurate  Valuation 
of  Land 830 

S  IS.  Present    Method    of    Valuation    compared    with    Scientific 

Method 833 

§  14.  Hoffman-Neill  Rule 885 

§  15.  Somers  System  of  Valuation 837 

§  16.  Objections  to  Tax  —  Confusion  with  Single  Tax  —  Relative 
Expediency  of  Tax  for  Rural  and  Urban  Communities  — 
Most  Expedient  Form 841 


CHAPTER  Vm 

THE  TAX  AS  A  SOCIAL  REFORM 

5    1.  Problems  for  Inquiry  —  Unearned  Increment  —  Speculation 

in  Land  —  Housing  —  Private  versus  Public  Ownership       .  848 

§    2.  Classification   and   Differentiation  of   the  Three  Kinds  of 

Land 349 

S    S.  Agricultural  Depression  and  Decline  in  Value  of  Rural  Land  in 

Europe 851 

§   4.  Increase  in  Agricultural  Land  Value  in  the  United  States, 

Australasia,  Canada 854 

$    5.  Fluctuations  in  Value  in  above-mentioned  countries  —  Con- 
clusions and  Tendencies 855 

S    6.  Infiuences  affecting  the  value  of  Urban  Land  —  Examples  of 

Increments  in  Urban  Land  Value 858 

§    7.  Decrements  and  Causes  of  Decrements  in  City  Real  Estate 

Value 864 

§    8.  Mines  and  Forests  —  Problem  of  Conservation  —  Illustrations 

of  Wastefulness  —  The  Value  of  Minerals  and  Timber        .  866 

§    9.  Summary:  Differences  between  the  Three  Kinds  of  Land  and 

N.  in  Problems  they  present 868 

N.     "^  10.  Definition  and  Peculiarities  of  Land  Speculation         .      .      .  870 
^  §  11.  Changes  in  the  Character  of  Land  Speculation  —  Less  Op- 
portunity than  formerly 872 

§  12.  Real  Estate  Companies  —  Their  Methods  of  Speculation  — 

Suburban  Building  Operations 875 

"§  IS.  The  Withholding  of  Land  from  Utilization  —  Extent  of  Prac- 
tice —  Taxation  on  Capital  Value  as  a  Check  ....  878 

§  14.  Results  of  Indebtedness  due  to  Overcapitalization  of  Real 

Estate  —  Loss  Through  Foreclosure 882 

S  15.  Conclusions  concerning  Speculation  in  Land        ....  884 


^ 


\ 


> 


liv  CONTENTS 

CHAPTER  IX 

THE  TAX  AS  A  SOCIAL  REFORM  {concluded) 

§    1.  Far-Reaching  Effects  of  Housing  Conditions       ....  388 

§    2.  The  Slums  in  Large  Cities  —  Congestion 890 

§    3.  Causes,  Economic  and  Social 891 

§    4.  Relation  between  Housing  and  Rents  —  Building  and  Sanita- 
tion Legislation  and  Regulations  —  Effect  on  Rent  —  Ele- 
ments entering  into  Ground  and  Building  Rents    .       .      .  392 
§    5.  Putative  Effects  of  the  Tax  on  Congestion  —  Deductions  by 

the  Adherents 895 

5    6.  Deductions  by  the  Adversaries 398 

§    7.  Actual  Effects  of  Tax  on  Rent,  on  Building,  on  Speculation  .  402 
§    8.  Public  Ownership  as  Means  of  suppressing  Abuses  arising  from 

Speculation  in  Land 404 

S  9.  Need  and  Expediency  of  the  Nationalization  of  Agricultural 
Land  —  The  Efficacy  of  Tax  on  Land  Value  in  the  Disinte- 
gration of  Large  Estates 406 

§  10.  Need  and  Expediency  of  the  Public  Appropriation  of  Urban 
Land  —  Experiments  in  Municipal  Housing  Schemes  — 
Expediency  of  Public  Appropriation  of  Part  of  the  Incre- 
ments from  Urban  Land  Value 409 

5  11.  Public  Ownership  of  the  Natiu*al  Resources  —  Tendency  to- 
ward Monopolization  —  Problem  of  Conservation       .      .  415 
§  12.  Failure  of  Tax  as  a  Vital  Social  Reform  Measure        .      .      .  420 

CHAPTER  X 

EXPEDIENCY  OF  THE  TAX  ON  LAND  VALUE  FOR 
THE  UNITED  STATES 

§    1.  Fiscal  Needs  in  the  United  States — Inquiry  confined  to  Direct 

Proportional  Tax  for  Local  Piuposes 422 

§    2.  Tendency  of  Expenditure  of  Local  Bodies  to  increase  .      .      .  424 
§    8.  Inadequacy  of  General  Property  Tax  —  Evasion  and  other 

Consequences 427 

§    4.  Evils  of  Underassessment  —  Causes  and  Remedies     .       .       .  428 
§    5.  Constitutional  Barriers  to  Reform  in  Taxation  —  Progress 
toward  Reform  —  Inadequacy  of  the  "  Classification  of 

Property"  Reform 431 

§    6.  Tendency  toward  Separation  of  State  and  Local  Taxation 

—  Local  Option  as  Result 438 

§  7.  Local  Option  in  Taxation  —  Meaning  —  Dangers  —  Ef- 
fects   485 

§    8.  Administrative  Changes  Fundamental  in  all  Proposals      .       .  489 
§    9.  Proposed  Reforms  in  Local  Taxation  —  Their  Relative  Ex- 
pediency       .....     442 


CONTENTS  XV 

§  10.  Positive  Effects  of  Tax  on  Land  Value  as  Justification  of 

Change 445 

§  11.  Probable  Distribution  of  Burden  by  the  Tax  on  the  Land- 
owners       448 

S  12.  Summary  of  Recent  Legislation  with  respect  to  Exemption  of 
Improvements  in  American  Cities  —  Causes  and  Trend  of 
Movement 460 

BIBLIOGRAPHY    .      . 461 

INDEX 485 


THE  TAXATION  OF  LAND  VALUE 

CHAPTER  I 

THE  TAX  ON  LAND   VALUE 

§  1.  The  problems  of  tapping  new  sources  of  public 
revenue  and  of  improving  the  present  systems  of  taxation 
tend  to  grow  more  and  more  vital.  The  reason  is  patent. 
Public  expenditures  are  increasing  enormously  because  of 
the  socializing  tendencies  of  the  government.  Especially 
in  urban  communities  where  the  social  welfare  spirit  has 
taken  root,  the  disbursements  for  public  utilities,  for  cul- 
tural and  recreational  facilities,  as  well  as  for  public  safety 
and  sanitation,  claim  a  greater  percentage  of  the  budg- 
etary requirements  from  year  to  year.  When  we  inquire 
what  constitute  the  taxable  sources  to  meet  the  growing 
budgets  in  most  American  cities,  we  find  some  form  of  the 
property  tax,  supplemented  by  the  franchise,  corporation, 
business,  or  similar  taxes.  But  since,  for  purposes  of  taxa- 
tion, personal  property  is  as  elusive  as  the  will-of-the-wisp, 
the  burden  falls  mainly  on  real  property.^  And  under  the 
present  defective  system  of  valuation  and  assessment,  this 
burden,  it  will  be  agreed,  is  most  unequally  distributed. 
Under  these  circumstances  the  discussion  of  the  tax  on 
land  value,  which  has  been  proposed  as  a  substitute,  or  as 
supplementary  to  the  property  and  other  taxes,  is  oppor- 
tune. 

*  In  most  American  cities  from  seventy  per  cent  to  about  ninety-five 
per  cent  of  the  general  property  tax  is  derived  from  real  estate,  accord- 
ing to  an  estimate  made  from  Table  34  of  the  Special  Report  of  the  Bu- 
reau of  the  Census.  Financial  Statistics  of  Cities  Having  a  Population  of 
over  30,000,  1909.  For  example  in  Brooklyn,  New  York,  more  than 
ninety-eight  per  cent  of  the  taxes  was  in  1895  derived  from  this  source. 
Cf.  Seligman,  Essays  in  Taxation  (1913),  p.  25. 


2  THE  TAXATION  OF  LAND  VALUE 

§  2.  In  recent  years  the  taxation  of  land  value  has  taken 
on  a  signification  somewhat  different  from  its  literal  mean- 
ing. Literally  land  has  always  been  taxed  on  its  value. 
Even  in  the  taxation  of  land  according  to  acreage,  e.g., 
the  danegeld  or  scutage,^  we  perceive  an  attempt,  though 
a  crude  one,  to  value  the  land.  And  in  this  country  there 
is  no  more  prolific  source  of  local  revenue  than  the  land, 
which  is  legally  and  supposedly  assessed  on  its  market 
value.  Nor  can  "land  value"  mean  only  the  full  market 
or  capital  value, '^  for  there  are  a  few  cities  and  counties 
—  e.g.,  Suffolk  County,  Massachusetts  —  which  claim  to 
tax  land  on  its  actual  value;  nevertheless,  in  the  modern 
denotation  of  the  phrase  the  tax  on  land  value  does  not 
exist  in  these  communities.' 

The  distinctive  characteristic  of  the  tax  is  not  alone  that 
it  is  levied  on  the  actual  selling  or  capital  value,  but  that  it 
is  levied  on  the  unimproved  value,  on  the  site  irrespective 
of  the  value  of  the  buildings  and  other  improvements 
thereon.  In  other  words  it  is  a  discriminatory  tax  on  land. 
Though  of  comparatively  recent  origin  the  tax  has  al- 
ready assumed  various  forms,  the  heterogeneity  of  which 
will  be  gathered  from  the  following.  Recently  the  cities 
of  Pittsburg  and  Scranton  were  probably  taken  aback 
by  the  newspaper  pronouncement  that  the  tax  on  land 
value  had  there  been  unwittingly  instituted.  That  is,  the 
Stein  bill,*  which  became  a  law  May,  1913,  provides  for 

*  Thus  the  scutage  was  a  charge  on  the  knight's  fee  corresponding  to 
£20,  annual  value,  a  rough  estimate  of  the  value  of  the  land.  CJ.  Dowell, 
History  of  Taxes  and  Rates  in  England  (1888),  vol.  i,  p.  4fO. 

*  By  capital  value  of  land  is  meant  the  sum  which  the  land  might  be 
expected  to  realize  at  the  time  of  valuation  if  offered  for  sale  on  such  rea- 
sonable terms  and  conditions  as  a  bona  fide  seller  might  be  expected  to 
require. 

*  In  fact  the  question  of  full  value  assessment  as  an  administrative 
improvement  is  at  present  receiving  the  attention  of  many  state  legisla- 
tures with  the  prospect  of  adoption,  yet  no  country  is  more  reluctant 
than  ours  to  institute  the  taxation  of  land  value. 

*  Pennsylvania  H.R.  Bill  967  (1913),  approved  May  15, 1918. 


TBGE  TAX  ON  LAND  VALUE  8 

the  gradual  reduction  of  the  tax  on  buildings  in  the  sec- 
ond-class cities  of  Pennsylvania.  This,  however,  is  an 
example  of  only  partial  taxation  on  land  value.  The  study 
of  the  subject  makes  evident  the  existence  of  the  system: 
(1)  in  Australasia,  in  the  tax  on  the  unimproved  value  of 
the  land  and  the  exemptions  of  improvements;  (2)  in  West- 
ern Canada,  in  the  municipalities  where  improvements 
have  in  recent  years  been  wholly  or  in  part  exempted  from 
taxation;  (3)  in  Germany,  in  the  shape  of  the  value-incre- 
ment tax;  (4)  in  Kiao-chau,  where  besides  a  value-incre- 
ment tax  of  thirty-three  and  a  third  per  cent,  a  six  per  cent 
tax  is  levied  annually  on  the  value  of  the  site;  and  (5)  in 
England,  in  the  form  of  the  land-value  duties  comprising 
the  increment,  reversion,  the  undeveloped  land,  and  the 
mineral  rights  duties.  The  protean  character  of  the  tax 
is  thus  evident. 

The  discriminatory  feature  of  the  tax  raises  the  ques- 
tion of  its  raison  d'etre,  the  analysis  of  which  is  as  essential 
to  the  understanding  of  the  system  as  the  mode  of  levy  it- 
self. If  we  analyze  the  criticism  and  speculation  which 
the  introduction  of  the  above  taxes  has  evoked,  we  find 
misapprehension  and  confusion  of  thought.  By  some,  for 
example,  the  English  Lords,  ^  it  is  regarded  as  an  attack 
upon  private  property  rights;  by  others,  such  as  Adolph 
Wagner  and  the  "Kathedersozialisten,"  ^  as  a  protest 
against  the  accumulation  of  wealth,  especially  of  the  "un- 
earned increment,"  in  the  hands  of  a  few;  by  others, 
Adickes,'  for  example,  as  a  tax  on  special  benefit,  or  a 
special  assessment;  by  still  others,  including  the  general 

*  See  Parliamentary  Debates  of  Commons  and  Lords  (1909-10).  Also 
<jf.  infra,  chapter  v,  §§  1,  5. 

'  Many  American  professors  of  economics  so  regard  the  tax,  e.g., 
H.  J.  Davenport.  See  "Extent  and  the  Significance  of  the  Unearned 
Increment,"  in  Bulletin  of  the  Am.  Ec.  Assoc.  (1911),  ser.  4,  vol.  i,  pp. 
S22/. 

*  Mayor  of  Frankfurt  a.  M.  Like  many  German  officials,  he  approved 
of  the  "  Wertzuwachssteuer"  because  of  its  expediency.  Cf.  infra,  chap- 
ter IV,  §  9. 


4  THE  TAXATION  OF  LAND  VALUE 

American  public,^  as  the  Single  Tax  in  disguise,  i.e.,  the 
entering  wedge  to  the  Single  Tax;  while  to  others,  notably 
B.  Marsh,2  it  is  merely  a  fiscal  measure,  an  improved 
method  of  local  taxation,  to  replace  or  supplement  the 
realty  tax.  Which  is  the  correct  interpretation?  Or  is 
there  a  common  ground  of  agreement  among  them? 

To  disclose  the  essence  of  this  tax  and  its  raison  d'etre 
in  the  face  of  this  heterogeneity  of  conception  is  the  first 
purpose  of  this  monograph;  the  further  purpose  is  to  dis- 
cuss the  expediency  of  its  enactment  from  a  study  of  the 
actual  operation  of  the  tax  as  well  as  of  its  underlying 
principles. 

§  3.  A  study  of  the  above-mentioned  systems  shows 

that  not  alone  in  method  of  assessment  and  levy,  but  also 

in  their  rationale  great  differences  exist.   From  both  these 

standpoints  therefore,  tentative   definitions  of   the   tax 

on  land  value  will  be  attempted,  comprising  not  so  much 

the  systems  in  operation,  as  the  hypothetical  ideal  common 

to  those  systems. 

/^   From  the  fiscal  standpoint,  the  tax  on  land  value  to  be 

I    herein  discussed  is  levied  on  the  realized,  or  anticipated, 

\  capitahzed  income  '  accruing  from  the  site,  distinct  from 

J  all  structures  and  other  improvements  upon  it.  Thus  the 

^tax  presumably  falls  on  economic  rent,  the  basis  for  the 

y  assessment  being  either  the  market  value  of  the  land,  or 

(  its  realized,  or  potential,  annual  rental.*  The  pith  of  the 

*  The  writer  has  in  mind  the  vehement  opposition  to  the  adoption  of 
the  tax  in  Oregon,  Washington,  and  Missouri.  Cf.  infra,  chapter  x. 

*  Taxation  of  Land  Values  in  American  Cities  (1911). 

*  In  only  a  few  cases,  e.g.,  the  English  mineral  rights  duty,  the  rental 
is  made  the  basis  of  the  tax,  but  in  these  cases  the  rental  bears  an  arbi- 
trary ratio  to  the  capital  value.  In  the  English  mineral  rights  duty,  for 
example,  the  income  is  assumed  to  be  two  twenty-fifths  of  the  capital 
value. 

*  The  annual  rental  is  not  always  the  criterion  of  the  capital  value  of 
the  land.  This  will  become  evident  when  the  English  rating  system  is 
discussed  in  chapter  v.  Whether  the  selling  value,  the  net,  or  gross  rental 
is  the  proper  taxable  basis  involves  a  subtle  distinction  important  only 
from  an  administrative  standpoint.  See  chapter  vii,  §  7. 


THE  TAX  ON  LAND  VALUE  B 

system  from  the  standpoint  of  taxation  is  contained  in 
tlie  following  principles:  first,  all  land,  whether  utilized  or 
undeveloped,  whether  yielding  a  rental  at  the  time  or  not, 
shall  be  taxed  at  its  full  value,  which  shall  be  ascertained 
by  expert  assessors  according  to  a  scientific  system  of  valu- 
ation; secondly,  in  accordance  with  the  theory  of  the  tax, 
all  improvements  and  buildings  shall  be  exempted  from 
taxation.^  This  is  its  essence;  the  actual  methods  will  be- 
come clearer  after  considering  in  the  next  section  the  vari- 
ous forms  of  assessment  and  levy. 

The  rationale  of  the  tax  is  fourfold,  ethical,  economic, 
social  and  fiscal. 

(a)  The  ethical  justification  of  the  tax  is  founded  on  the 
conception  of  the  "unearned  increment."  The  r61e  played 
by  the  doctrine  of  the  "unearned  increment"  as  funda- 
mental in  the  taxation  of  land  value  is  well  known.  The 
term  first  employed  by  John  Stuart  Mill  and  based  on  the 
Ricardian  theory  of  rent  has  been  perpetuated  by  the 
Single  Taxers.  In  recent  years,  however,  when  the  phrase 
is  stretched  by  economists  to  include  surpluses  other  than 
those  accruing  from  land,  the  term  has  assumed  a  different 
meaning.  Value  increments  accruing  from  the  land  are  re- 
garded as  created  through  certain  social  forces^    and, 

*  It  will  be  found  that  these  requirements,  namely  expert  valuation 
and  exemption  of  improvements,  are  implied,  if  not  existent  in  all  the 
forms  of  the  tax  to  be  discussed.  This  is  true  of  the  value-increment  duty 
as  well  (see  infra,  §  5).  Practically,  however,  whenever  the  rate  of  tar, 
or  the  percentage  of  assessed  value  of  the  site  exceeds  that  of  the  improve- 
ments the  principle  of  the  tax  on  land  value  may  be  said  to  be  in  force. 

'  To  the  argument  that  the  value  of  all  wealth  is  dependent  upon  social 
influences,  and  that  value  increment  accrues  from  other  forms  of  wealth 
besides  land  because  of  social  causes,  and  not  because  of  individual 
effort,  the  reply  is  given  that  whereas  competition  prevents  abnormal 
profits  falling  to  the  capitalist  and  laborer,  land  is  a  monopoly  by  virtue 
of  which  the  value  of  the  land,  increasing  with  the  population  and  indus- 
trial development,  accrues  to  the  owner  of  the  property  right.  All  other 
artificial  monopolies,  moreover,  are  said  to  have  their  root  in  this  mo- 
nopoly of  natural  resources.  Cf.,  for  example.  The  Public,  September  12, 
1913,  pp.  8C8jf. 


6  THE  TAXATION  OF  LAND  VALUE 

therefore,  it  is  thought,  rightfully  belong  to  the  commun- 
ity as  a  whole.  Since  land  is  a  gift  of  nature,  and  its  value 
is  not  attributable  to  individual  effort,  the  private  appro- 
priation of  such  value,  it  is  argued,  is  ethically  unjustifi- 
able. On  this  basis  of  the  distinction  between  what  is 
socially  created  and  what  is  privately  earned  rests  the 
chief  argument  of  the  advocates  of  the  tax  on  land  value. 
"  (6)  But  this  ethical  consideration  does  not  appear  sep- 
arately; the  economic  factor  is  ever  present.  Indeed  the 
phenomenon,  "unearned  increment,"  arises  and  can  be 
formulated  only  when  scarcity  appears,  that  is,  where 
economic  equality  is  prevented  either  by  the  natural 
scarcity  of  the  commodity  or  through  legal  limitation. 
Take  the  duty  on  undeveloped  land  or  the  super-assess- 
ment tax  in  Canada  as  examples:  their  object  is  to  prevent 
the  holding  of  land  for  speculative  purposes.  The  duty, 
in  other  words,  puts  a  premium  upon  improved  land. 
For  instance,  when  the  owner  of  vacant  lots  in  the  vicinity 
of  improved  land  receives  a  heavy  tax  bill  on  property 
which  yields  him  no  income,  he  is  tempted  either  to  sell, 
or  to  utilize  the  site  himself. 

(c)  To  the  ethical  and  economic  considerations  should 
be  added  the  social  justification  which  was  largely  respons- 
ible for  the  adoption  of  the  tax  in  Australasia  and  in 
Canada:  namely,  to  discourage  large  land  holdings  and 
absenteeism.  Viewing  the  land  question  in  these  coun- 
tries as  less  urgent  than  in  European  countries  we  prefer 
to  regard  this  influence  as  social  rather  than  economic.  In 
other  words,  it  was  a  union  of  political  forces  against  an 
unpopular  class.  Further,  the  new  "social-service"  view- 
point, as  exemplified  in  the  theory  of  "socially  created 
increment  value,"  seeking  by  means  of  social  welfare  and 
public  service  institutions  to  level  down  the  economic  in- 
equalities among  the  social  groups,  has  exerted  an  influence 
in  calling  the  tax  into  existence. 

(d)  However  much  these  causes  may  have  been  instru- 


THE  TAX  ON  LAND  VALUE  7 

mental  in  promoting  the  institution  of  the  tax  for  imperial 
or  state  purposes,  they  nevertheless  do  not  appear  to  have 
determined  the  raison  d^etre  of  the  local  systems.  In  the 
new  communities  of  Australasia  and  Canada,  where  the 
value  of  the  land  tends  to  rise  rapidly  with  the  influx  of 
immigrants,  and  where  land  constitutes  the  chief  source 
of  wealth,  the  tax  on  the  unimproved  value  of  the  land  has 
been  found  fiscally  preferable  to  the  tax  on  capital,  which 
is  scarce  and  the  accumulation  of  which  it  is  desirable  to 
encourage.  It  will  appear,  indeed,  that  while  the  tax  for 
other  than  local  purposes  owes  its  origin  chiefly  to  the 
social,  economic,  and  ethical  considerations,  the  local  taxes 
on  land  value  are  predominantly  fiscal  in  character.^ 

§  4.  Having  defined  and  explained  the  rationale  of  the 
tax  on  land  value,  it  is  necessary  to  point  out  the  various 
forms  which  the  tax  from  the  standpoint  of  administra- 
tion has  assumed :  — 

1.  Direct  levies: 

(o)  Proportional  taxes; 

(1)  general; 

(2)  specific:  undeveloped  land,  mineral  rights, 
timber  land; 

(6)  Progressive  taxes; 

2.  Indirect  levies: 

(a)  Proportional; 

(1)  value-increment  duty  (England) ; 

(2)  reversion  duty; 

(b)  Progressive; 

value-increment  duty  (Germany). 
Direct  ^  taxes  are  periodically  recurrent,  that  is,  collected 

*  A  possible  exception  is  the  German  municipal  "Wertzuwachssteuer" 
whose  origin  is  discussed  infra,  chapter  rv. 

*  The  words  "direct"  and  "indirect"  as  applied  to  taxes  are  here  em- 
ployed in  a  different  sense  from  the  customary  one  based  on  the  incidence 
of  the  tax,  the  tax  being  direct  if  levied  immediately  on  the  ultimate 
bearer  of  the  charge,  and  indirect  if  shifted  by  the  immediate  payer  to 
the  consumer,  as  in  the  case  of  commodities.  For  authority  for  the  other 


8  THE   TAXATION  GF  LAND  VALUE 

annually  according  to  a  general  assessment;  while  indirect 
taxes  are  charged  on  stipulated  occasions,  i.e.,  at  the  time 
of  a  sale  or  lease,  or  upon  the  death  of  the  owner;  in  other 
words,  whenever  a  transfer  of  property  occurs.  The  latter 
may  be  paid  in  the  form  of  a  stamp  tax  at  the  time  the 
'land  is  transferred  by  a  deed  of  sale,  or  by  a  lease.  By  gen- 
eral proportional  "^  tax  is  meant  one  imposed  annually  on  all 
land  at  a  uniform  tax  rate.  We  shall  find  this  system  in 
vogue  for  local  purposes  in  those  English-speaking  com- 
mimities  ^  where  the  tax  is  in  operation.  When  a  scale  of 
rates  increases  directly  with  the  greater  value  of  the  land 
in  addition  to  the  ordinary  charge  on  land,  we  have  what  is 
known  as  the  progressive  or  graduated  land  tax.  Thus  in 
some  cases,  to  the  proportional  levy  of  Id.  in  the  pound  of 
the  capital  value,  may  be  added  a  scale  of  rates,  e.g.,  ^^d. 
rising  to  M.  on  the  capital  value  of  estates  ranging  from 
£5000  to  £200,000.  This  scale  will  be  found  levied  es- 
pecially for  state  and  federal  purposes,'  in  some  cases  as  a 
super-tax,  that  is,  in  conjunction  with  the  ordinary  rate  as 
in  the  above  assumed  illustration;  in  others  as  the  princi- 
pal levy  without  the  ordinary  rate. 

The  specific  direct  taxes  are  those  levied  on  unim- 
proved, timber,  or  mineral  land.  Whether  imposed  in 
conjunction  with  other  forms  of  the  land  tax  or  as  a  sep- 
arate levy,  the  specific  tax  is  intended  as  an  especially  dis- 
criminatory land  charge.  This  characteristic  of  the  tax  on 
unimproved  land,  for  example,  is  shown  by  the  methods 
of  levy.  Thus,  undeveloped  land  may  be  subject  to  a  rate 

usage  of  the  terms  see  Eheberg,  Finanzvnssenschaft  (1911  ed.),  PP-  204-05; 
also  cf.  Bullock,  "Direct  and  Indirect  Taxes"  in  Pol.  Sci.  Qiiart.,  vol. 
XIII,  pp.  463-65. 

^  "Proportional"  is  used  in  its  technical  sense  of  uniform  rate  for  all 
property  or  income  regardless  of  the  amount  of  taxable  value.  In  Pro- 
fessor Seligman's  terms,  "a  tax  is  proportional  when  the  mathematical 
relation  between  the  amount  of  the  tax  and  of  the  thing  taxed  remains 
the  same."  "Progressive  Taxation  in  Theory  and  Practice,"  in  Am.  Ec. 
Assoc.  Quart.,  vol.  ix,  p.  565. 

*  In  Australasia  and  Canada.         *  Characteristically  in  Australasia. 


THE  TAX  ON  LAND  VALUE  9 

one  hundred  per  cent  higher  than  that  on  improved  land;* 
or  unimproved  land  may  be  assessed  at  a  value  twenty-five 
per  cent  higher  than  its  selling  price;  ^  or  a  rebate  from  part 
of  the  tax  may  be  allowed  the  owner  of  improved  land.' 

Distinguished  from  the  direct  taxes  are  those  collectible 
on  certain  occasions  of  transfer  of  property.  As  in  the  case 
of  the  direct  taxes,  the  two  types,  namely,  the  propor- 
tional *  and  the  progressive,^  occur  also  as  indirect  levies.  In 
the  case  of  the  duty  on  value  increment,  i.e.,  the  difference 
between  the  value  of  the  land  on  the  occasion  of  levy  and 
its  value  on  a  previous  occasion,  the  tax  is  collectible,  as 
already  stated,  at  the  time  of  a  transfer  of  property,  either 
by  sale,  lease,  or  at  death.'  The  occasion  for  the  collection 
of  reversion  duty  '  is  at  the  termination  of  a  lease,  when 
the  property  reverts  to  the  owner.  In  all  other  respects 
the  reversion  duty  is  a  value-increment  duty.  As  the  na- 
ture of  the  assessment  for  computing  the  tax  is  complex 
and  unique,  an  attempt  will  be  made  in  the  following  sec- 
tion to  describe  and  illustrate  the  system  of  taxing  the 
value  increment. 

§  5.  The  progressive  tax  on  value  increment,  the 
"Wertzuwachssteuer,"  is  essentially  of  German  origin.  In 
common  with  the  other  forms  of  the  tax,  it  aims  to  appro- 
priate a  portion  of  the  surplus  or  differential  value  of  the 
land  in  behalf  of  the  conmiimity;  in  the  method  of  proce- 
dure, however,  it  is  different  from  the  direct  levies.  First, 
the  direct  tax  collects  its  share  of  the  value  in  annual  in- 
stallments; the  tax  on  value  increment  collects  a  lump  sum 

*  In  the  German  municipalities. 

*  The  super-assessment  tax  in  Canada. 

;    •  The  Western  Australian  State  tax.       *  In  Kiao-chau  and  England. 
'  In  Germany  for  both  imperial  and  local  purposes. 

*  There  is  only  one  more  occasion  for  the  levy  of  value-increment 
duty.  That  is  the  arbitrary  occasion  created,  as  we  shall  see,  in  the  Eng- 
lish Act  for  taxing  corporations,  namely,  in  1914,  and  every  subsequent 
fifteenth  year.  See  infra,  chapter  v. 

'  Characteristically  Englbh,  for  it  is  in  England  that  the  leasing  sys- 
tem is  most  prevalent. 


"/ 


10     THE  TAXATION  OF  LAND  VALUE 

on  the  particular  occasions  mentioned  above.  Secondly, 
QflriSiiBBiHMiHihiianpov^MMe,  the  tax  on  value  increment 
falls  only  on  the  surplus,  or  as  its  name  implies,  on  the 
value  increment,  not  on  the  whole  capital  value.  The 
government,  therefore,  claims  a  part  of  the  owner's  profit 
arising  from  the  appreciation  in  the  value  of  the  land. 

The  method  of  valuing  the  increment  is  as  follows: 
When  a  piece  of  property  on  which  duty  is  chargeable  is 
sold  or  leased,  its  selling  price  (in  case  of  a  lease,  its  ap- 
praised price)  is  compared  with  its  purchase  price,  i.e.,  the 
selling  price  at  a  previous  transfer  when  duty  was  paid; 
and  the  differential  of  the  present  price  over  that  previous 
price  constitutes  the  increment  upon  which  duty  is  im- 
posed. Two  selling  or  appraised  prices,  then,  must  be 
known  before  the  amount  of  appreciation  can  be  com- 
puted. A  moment's  reflection  makes  it  clear  that  the  tax 
may  be  retroactive.  In  the  German  laws,  in  order  to  com- 
pute the  tax  the  first  time  it  is  levied,  an  arbitrary  ap- 
praisal value  has  in  most  cases  been  fixed.  This  is  called 
the  "original  site  value,"  and  is  ascertained  for  an  arbitrary 
date  stipulated  in  the  bill.^  To  illustrate,  the  "Wertzu- 
wachssteuer"  in  Breslau  went  into  effect  on  June  23, 1907. 
The  bill  fixed  January  1, 1895,  as  the  time  for  which  the 
original  site  value  should  be  computed.  If,  then,  in  De- 
cember, 1907,  a  lot  was  sold  in  Breslau  for  15,000  marks 
which  had  been  worth  on  January  1,  1895,  9000  marks, 
duty  would  have  been  charged  on  the  difference  in  the 
prices,  or  on  6000  marks.  Suppose,  now,  that  in  1910  the 
same  piece  of  land  changed  owners  and  its  selling  price  was 
then  16,000  marks,  the  duty  would  be  collected  on  1000 

^  The  details  of  this  method  of  computation  will  be  found  infra,  chap- 
ters IV  and  V.  It  may  be  here  noted  that  while  the  German  tax  is  with 
few  exceptions  retroactive,  falling  on  the  value  increment  that  has  ac- 
crued in  the  past,  the  English  bill  seeks  to  appropriate  part  of  the  future 
increment  only;  the  latter  bill  provides  for  a  valuation  of  all  the  land  at 
the  time  of  the  enactment  of  the  law,  in  this  way  establishing  the  original 
site  value. 


THE  TAX  ON  LAND  VALUE  11 

marks.  ^  In  case  of  a  depreciation  in  price,  of  course  no 
tax  is  levied.  Thus,  if  the  price  of  the  lot  in  1910  had  re- 
mained 15,000  marks  or  had  fallen  below  this  amount  no 
increment  duty  would  have  been  collectible.  It  is  need-_ 
less  to  repeat  that,  as  in  the  other  taxes  on  land  value,  the 
value  of  the  improvements  and  buildings  would  have  been 
deducted  before  the  value  increment  was  ascertained. 

From  this  brief  analysis  it  will  be  observed  (1)  how 
different  the  modes  of  assessment  are,  and  (2)  how  het- 
erogeneous are  the  forms  which  the  tax  on  land  value 
has  assumed.  It  will  further  be  observed  that  several 
forms  may  coexist  in  the  same  community.  The  best  illus- 
tration of  this  protean  tax  is  to  be  found  in  the  English 
system  which  comprises  four  separate  duties  on  land.  To 
define  further  the  distinctive  character  of  this  tax  it  will 
benecessary  to  differentiate  it  from  other  land  taxes. 

§  6.  The  pivotal  distinction  between  the  land-value  tax 
and  the  other  land  taxes  lies  in  the  theory  of  incidence. 
In  accordance  with  this  theory,  the  only  tax  on  land  which 
cannot  be  shifted  is  one  which  falls  on  economic  rent;  such 
a  tax  is  that  on  land  value. 

Regardless  of  this  theory  of  incidence,  the  earliest  sys- 
tem of  land  taxation  made  area  the  basis  of  valuation, 
e.g.,  the  scutage  or  danegeld.  In  such  taxes  the  rent,  or 
income-bearing  capacity  of  the  land,  is  ignored.  Survivals 
of  this  crude  system  are  to  be  met  with  even  to-day.^ 
Later,  product,  or  fertility,  superseded  area  as  the  basis 
of  assessment,  e.g.,  in  the  "taille,"  or  tallage.  Product, 
however,  theoretically  represents  wages,  interest,  profit, 
as  well  as  economic  rent.  Hence  this  form  of  the  land  tax 

*  The  system  of  assessment  is  more  complicated  because  of  a  minimum 
exemption,  of  the  deductions  and  additions  to  the  selling  prices,  etc.  CJ. 
infra,  chapters  iv  and  v. 

*  Even  yet  instances  occur  where  area  is  made  the  basis  of  assess- 
ment. In  Greece,  for  example,  land  is  taxed  according  to  area.  Cf.  Bas- 
table.  Public  Finance  (1895),  p.  406.  Also  in  Alberta,  Canada,  land  is 
subject  to  a  provincial  tax  based  on  area.  Cf.  State  and  Local  Taxation, 
Second  Conference  of  the  International  Tax  Association  (1908),  p.  299. 


12  THE  TAXATION  OF  LAND  VALUE 

does  not  satisfy  the  requirements  of  the  discriminatory 
tax  on  land,  the  so-called  tax  on  land  value. 

Another  land  charge  which  should  be  distinguished 
from  the  tax  on  land  value  is  the  apportioned  land  tax. 
As  its  name  implies,  the  amoimt  of  revenue  expected  to 
accrue  from  its  levy  is  apportioned  by  the  central  govern- 
ment among  the  subordinate  taxing  jurisdictions,  each  of 
which  becomes  responsible  for  the  collection  of  a  quota 
determined  by  the  assessed  value  of  the  land  at  the  time 
of  apportionment.    Now,  were  the  tax  frequently  reap- 
portioned in  accordance  with  periodic  "cadastral"  valua- 
tions, and  were  the  assessment  made  on  the  actual  selling 
Drice  of  the  land,^  the  tax  would  fall  on  the  value  of  the 
1  land.    As  a  matter  of  fact,  however,  apportioned  taxes 
/  become  fixed  charges,  the  same  quota  being  paid  to  the 
central  authority  irrespective  of  the  changes  in  the  value 
/   of  the  land  due  to  the  progress  or  retrogression  of  the  dis- 
/    trict.2  Thus  the  English  land  tax  (instituted  as  far  back  as 
I     1692)  has  yielded  an  almost  constant  sum,  less  than  one 
milHon  pounds,  for  about  a  century,  in  spite  of  the  enor- 
mous appreciation  in  the  value  of  the  land  during  that 
time.    Such  taxes   practically   become    permanent   rent 
charges. 

The  prevailing  form  of  land  taxation  to-day  is  the  tax 
OH  real  property.  Whether  we  consider  the  English  system 
of  rating  on  rental,  or  the  real  estate  tax  on  selling  price  in 
this  country,  they  differ  from  the  tax  under  consideration 
in  their  failure  to  accept  the  principle  of  exempting  build- 
ings and  improvements,  and  in  the  system  of  assessment. 
As  ordinarily  levied,  the  tax  on  real  property  is  character- 
^   ized  as  follows:  — 

JC     (1)  Unused  land  is  generally  assessed  at  a  lower  value 
y^V  j^than  the  surrounding  improved  sites;  thus  a  premium  is 

(/^\  "*   '      *  More  often  not  rent  but  product  formed  the  test  of  value. 

*  Such  taxes  may,  as  happened  in  England  under  Pitt's  redemption 
scheme,  be  redeemed  by  the  payment  of  a  lump  sum  representing  the 
capitalized  value  of  the  tax. 


I 


land  under  the  realty  tax  is  rarely  assessed  at  its  full  market 

value.   Although  this  is  a  matter  of  common  knowledge,    ,-..  ^ 


THE  TAX  ON  LAND  VALUE  18 

given  to  the  owners  who  for  speculative  purposes  hold  land 
out  of  use. 

(2)  Largely  because  of  the  crude  methods  of  assessment, 

the  following  statistics  showing  the  extent  of  under- 
assessment are  significant.  Summarizing  the  data  pre- 
pared by  S.  Wolff  ^  from  the  Census  Bureau  Reports,  real 
property  was  assessed  on  an  average  in  four  of  our  states 
at  from  fifteen  to  twenty-three  per  cent  of  its  actual  value, 
in  eight  states  at  from  thirty  to  forty  per  cent,  in  thirteen 
states  at  from  forty -one  to  fifty  per  cent,  in  seven  states  at 
from  fifty-two  to  sixty  per  cent,  in  five  states  at  from 
sixty-two  to  sixty-nine  per  cent,  in  seven  states  at  from 
seventy-five  to  ninety  per  cent.  Only  one  county  in  the 
entire  United  States  (Suffolk  County,  Massachusetts)  had 
its  real  estate  assessed  at  its  full  estimated  value. 

(3)  With  few  exceptions,  ^  no  provision  is  made  in  this 
country  for  the  expert  valuation  of  land,  so  that  the  surplus 
or  value  increment,  which  increases  rapidly  in  progressive 
communities,  for  long  periods  remains  untaxed.^  It  is 
important  to  note  that  in  view  of  this  exemption  of  value 
increment  from  taxation  for  long  periods  of  time,  the 
burden  of  an  increased  rate  of  tax  on  realty  is  to  some 
extent  compensated.  In  fact,  granting  the  validity  of  the 
principle  of  tax  capitalization,  whereby  the  capitalized 
value  of  the  tax  is  deducted  from,  or  "absorbed"  in,  the 
selling  value  of  the  land,  under-assessment  and  inexpert 
valuation  reduce  the  burden  of  the  tax  to  a  minimum.* 
For  as  a  result  of  this  "amortization,"  the  tax  on  realty 
ceases  to  be  a  tax  in  the  proper  sense  of  the  word. 

*  Tirsl  National  Conference  on  State  and  Local  Taxation  (1907),  p.  113. 
'  Cf.  infra,  chapter  vii,  §  12  jf.  *  See  quotation  infra,  p.  14. 

*  Infra,  chapter  vn,  §  5.  It  seems  very  probable  that  the  possibility 
of  the  amortization  of  the  tax,  added  to  the  Anglo-Saxon  respect  for  pri- 
vate property  rights,  is  responsible  for  the  defective  administration  of  the 
realty  tax  in  this  country. 


14  THE  TAXATION  OF  LAND  VALUE 

§  7.  Recently  an  improved  system  of  taxing  real  es- 
tate has  been  introduced  in  a  few  cities,^  with  the  purpose 
of  assessing  property  on  its  actual  selling  value.  The  im- 
provement consists  in  the  method  of  assessment  and  valua- 
tion. To  ascertain  the  full  market  value  of  the  property  a 
scientific  system  of  valuation  has  been  devised,  in  accord- 
ance with  which  the  land  is  valued  apart  from  the 
improvements.  It  must  be  noted,  however,  that  the  im- 
provements continue  to  be  taxed  at  the  same  rate  as  the 
site.  As  the  system  is  in  operation  to-day,  it  varies  from 
the  tax  on  land  value,  first,  in  that  buildings  and  improve- 
ments are  not  exempted  from  taxation;  secondly,  in  that 
the  assessed  value  is  kept  below  the  selling  price  of  the 
property.  Take  New  York  City  as  an  illustration.  EflS- 
cient  tax  administration  has  indeed  made  the  tax  on  sell- 
ing value  in  that  city  an  object  of  commendation. ^  Yet 
even  there  the  assessment  and  valuation  until  recently 
failed  to  keep  pace  with  the  enormous  growth  in  the  value 
of  the  land.  "The  growth  of  the  City  of  New  York  and 
the  great  increase  in  realty  values  since  that  time  (1903) 
have  been  such  that,  in  spite  of  the  rapid  marking  up  of 
values  at  that  time,  the  assessed  valuation  to-day,  taking 
the  city  as  a  whole,  probably  does  not  exceed  seventy  per 
cent  of  the  market  value,  and  in  many  cases  is  not  over 
sixty  per  cent.  ••A»»«:yam4i;iatir>n  <»fHdbHbooksrfor^ifierent 
—parts  of  the  city  and  for  all  classes  of  improvefiients, 
whether  business  houses,  private  dwellings,  or  tenement 
Jaouses,  leads  me  to  believe  that  the  assessed  valuations 
^f  land  lag  about  thirty  per  cent  behind  the  extraordi- 
nary rise  in  values  which  has  occurred  in  the  last  three 

1  Notably  New  York  City,  Newark,  New  Jersey,  Houston,  Texas, 
Cleveland,  Ohio.  Cf.  also  Papers  Bearing  on  Land  Taxes  and  on  Income 
Tax,  etc.  (1909),  Bril.  Pari.  Papers  (Cd.  4750),  pp.  92  jf.,  106.  Men- 
tion should  here  be  made  of  the  attempt  of  about  a  dozen  of  our  states 
to  assess  the  land  separately  from  the  buildings.  See  injra,  chapter  vil, 
§  11;  also  State  and  Local  Taxation  (1907),  p.  131. 

«  See  ibid.,  pp.  375/.;  also  (1908),  pp.  237  jf. 


^ 


THE  TAX  ON  LAND  VALUE  15 

years.  In  the  case  of  unimproved  property  in  many  cases, 
the  assessment  is  about  JBfty-five  to  sixty  per  cent  of  the 
market  value."  ^  In  the  interest  of  uniformity,  the  tax  on 
land  value  proposes  to  take  account  of  all  the  fluctuations 
in  the  value  of  the  land. 

8.  The  association  of  the  tax  on  land  value  with  the 
Single  Tax  is  so  prevalent  and  the  consequences  of  this 
association  so  serious  that  it  is  necessary  to  differentiate 
between  them.  There  is  ground  for  the  confusion  of  the 
two.  On  the  one  hand,  the  opponents  of  the  tax  on  land 
value  have  prejudiced  the  public  against  it  by  identifying 
this  tax  with  the  Single  Tax;  on  the  other  hand,  the  Single 
Taxers  exult  in  the  introduction  of  the  tax  on  land  value, 
regarding  it  as  the  vindication  of  their  theories,  and  as  the 
entering  wedge  to  the  Single  Tax. 

No  one  will  dispute  the  fact  that  fundamentally  they 
ave  something  in  common.  Both,  for  example,  stand  for 
an  eflBcient,  expert  valuation  system;  both  favor  the  ex- 
emption of  improvements  from  taxation;  both  insist  upon 
assessing  and  taxing  land  at  its  full  value.  -Neveilheless^M. 
as  enacted  4o-da^,  the  tax~on  l£i31d~T:ritte-bear&  no. closer 
rf.]Qt;rtn  t^>^hi»  c^fflgh.  ^fax- thao.  does  ihe.i^cently  enacted 
parcels  post  system  in  the  United  States,  for  example,  try 
state  sGciaKsm.  England,  for  instance,  with  her  vaiue- 
increment  duties  is  no  nearer  the  Single  Tax  regime  than 
is  this  country  with  her  pubUc  utilities  legislation  hear 
collectivism. 

^  First  Conference  on  State  and  Local  Taxation  (1907),  pp.  384-85. 
Other  authorities  corroborate  this  estimate  of  undervaluation.  Cf. 
Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  pp.  95,  105. 

Mr.  Purdy,  President  of  the  Tax  Commissioners  of  New  York  City, 
nevertheless  claims  that  the  assessment  in  New  York  City  represents  the 
full  value  of  the  land.  There  is  abundant  proof  that,  excellent  as  the 
work  of  the  commissioners  is,  their  land-value  assessment  is  not  accu- 
rately on  the  full  value.  (Cf.  Cederstrom,  Unjust  Taxation,  passim.)  For 
example,  to  make  the  accrued  rental,  so  long  as  the  value  of  the  site  is 
less  than  the  combined  value  of  the  land  and  building,  the  basis  of  com- 
putation of  the  selling  value  of  the  land  is  not  to  attain  an  accurate  full 
value  assessment.  See  Seventh  Conference  on  State  and  Local  Taxation 
(1913),  p.  264. 


^r^^. 


16  THE  TAXATION  OF  LAND  VALUE 

/  In  distinguishing  between  the  tax  on  land  value  and 
the  Single  Tax,  we  are  comparing  a  tax  reform  with  a  social 
philosophy.  The  Single  Taxers  are  not  interested  in  the 
tax  as  an  adequate  source  of  local  revenue  under  existent 
conditions;  they  would  employ  the  tax  as  the  weapon  with 
which  to  clear  the  way  to  their  Utopia,  the  essence  of  which 
is  an  ideal  society  based  on  an  equality  of  opportunity. 
The  important,  ultimate  object  of  the  Single  Taxers  of  the 
Georgean  type  is  the  nationalization  of  the  land;  the 
method  by  which  they  propose  to  attain  this  object  is 
through  a  one  hundred  per  cent  tax  ^  on  the  value  of  land. 
In  addition,  these  theorists  claim  that,  with  the  enormous 
income  from  the  public  domain  in  the  hands  of  society, 
the  imposition  of  other  taxes  will  be  superfluous.  In  short, 
the  one  hundred  per  cent  tax  on  land  value,  and  the  aboli- 
tion of  all  other  taxes,  that  is,  the  institution  of  the  Single 
Tax,  is  merely  the  machinery  necessary  in  the  realization 
of  their  Utopian  society.''  Contrast  this  doctrine  with  the 
slight  tax  on  land  value,  adopted  in  part  for  fiscal  pur- 
poses, in  part  in  the  interest  of  social  amelioration,  e.g., 
to  relieve  congestion  in  lu-ban  communities,  to  prevent 
^speculation  in  land,  and,  on  behalf  of  the  community,  to 
appropriate  a  little  of  the  enormous  appreciations  in  the 

^  The  writer  is  aware  that  the  Single  Taxers  propose  to  leave  the  land 
in  the  hands  of  individuals  who  will  practically  act  as  agents  of  the  gov- 
ernment and  who  will  receive  a  small  share  of  the  land  value  —  about 
five  per  cent  or  more  —  as  recompense.  This,  however,  does  not  alter 
the  theory  as  interpreted  above,  for  the  Single  Tax  is  primarily  opposed 
to  the  private  appropriation  of  land  value,  hence  of  private  property  in 
land.  As  to  those  moderate  (limited)  Single  Taxers  who,  like  C.  B.  Fille- 
brown,  would  limit  the  Single  Tax  "to  the  needs  of  the  state  for  an  effec- 
tive and  economical  administration  of  government,"  the  theory  remains 
unaltered.  C/.  The  A.B.C.  of  Taxation,  p.  153.  Moreover,  the  needs  of 
the  state,  as  Shearman  admits,  are  unlimited.  Cf.  Natural  Taxation,  pp. 
133-34. 

*  It  is  interesting  in  this  connection  to  note  that  Henry  George  him- 
self regarded  the  nomenclature  "Single  Tax"  as  a  misnomer.  Mr. 
George's  son,  in  the  Life  of  Henry  George,  says  in  a  footnote  (p.  496), 
"Mr.  George  never  regarded  the  term  as  describing  his  philosophy,  but 
rather  as  indicating  the  method  he  would  take  to  apply  it." 


THE  TAX  ON  LAND  VALUE  17 

value  of  the  land,  to  meet  the  growing  budgets.    Nor  is   ^ 
the  difference  between  them  one  of  degree,  merely;  the  ( 
doctrine  of  abolishing  all  taxes  is  as  foreign  to  the  princi-  \ 
pie  of  the  tax  on  land  value,  as  is  the  confiscatory  feature  C 
of  the  Single  Tax.  W 

Having  thus  attempted  to  epitomize  a  complex  system, 
it  is  necessary  to  show  to  what  extent  it  is  prevalent. 

§  9.  Mention  has  incidentally  been  made  of  the  several 
countries  where  the  tax  on  land  value  is  in  operation.  As 
early  as  1873  the  Canadian  province  of  British  Columbia 
enacted  a  wild-land  tax,  a  duty  on  unimproved  land.  This 
tax  is  in  force  to-day.  New  Zealand,  the  pioneer  in  social 
reform  legislation,  in  1878  passed  a  measm-e  taxing  the 
unimproved  value  of  the  land.  But  the  act  was  repealed 
in  the  following  administration,  and  it  was  not  until  the 
nineties  that  the  system  was  reintroduced  into  New  Zea- 
land and  instituted  in  Australia.  Since  then  the  tax  has 
gained  a  foothold  in  numerous  Australasian  municipali- 
ties, in  its  several  states,  and,  in  1910,  was  made  part  of  the 
federal  revenue  system  of  the  Commonwealth  of  Australia. 

An  interesting  experience  with  the  tax  on  land  value,  in- 
stituted in  1898,  is  furnished  by  Kiao-chau,  the  German 
province  in  Asia.  In  Germany,  the  duty  on  value  incre- 
ment was  first  incorporated  in  the  fiscal  policies  of  numer- 
ous municipalities,  Frankfurt  a.  M.  taking  the  lead  in 
1904.  According  to  Adolph  Damaschke,^  652  local  gov- 
ernments in  Germany  had  by  1911  adopted  the  tax.  The 
"  Reichszuwachssteuer,"  the  imperial  tax,  went  into  effect 
April  1,  1911. 

In  England,  by  the  enactment  of  the  "Finance  Act, 
1910,"  the  new  duties  on  land  value  became  law.  Turning 
to  Canada,  besides  the  wild-land  taxes,  a  number  of  local 
authorities,  notably  Vancouver  and  Edmonton,  have 
recently  revised  their  realty  taxes,  so  that  they  not  only 
axe  taxes  on  land  value,  but  constitute  practically  the  sole 
*  "Geschichte  der  Nationaldkonomie,"  p.  649  (Sth  ed.). 


18  THE  TAXATION  OF  LAND  VALUE 

source  of  local  revenue.  It  has  long  been  customary  in 
these  and  other  communities  of  the  western  provinces  to 
assess  the  improvements  at  a  lower  percentage  valuation 
than  the  sites.  It  is  noteworthy,  not  only  that  the  number 
of  municipalities  which  exempt  improvements  is  increas- 
ing, but  that  in  Alberta  and  Saskatchewan  general  pro- 
vincial regulations  have  been  enacted  providing  for  the 
taxation  of  land  value  for  local  purposes,  thus  assuring  the 
extension  of  the  tendency  in  that  country  to  rate  on  land 
value. 

§  10.  Summary:  It  will  be  observed  that  the  tax  on  land 
value  is  of  comparatively  recent  origin.  And  to  judge  from 
its  protean  character,  it  seems  to  have  had  a  spontaneous 
growth.  That  is,  the  tax  was  no  theory  or  scheme  of  defin- 
ite form  and  shape,  so  to  speak,  taken  over  as  a  whole  by 
this  or  that  country.  It  would  appear  rather  that  the  form 
or  forms  of  the  tax  which  were  adopted  in  the  several 
countries  were  those  that  seemed  to  be  most  suited  to  the 
needs  and  conditions  of  the  community.  That  this  was 
actually  the  case  will  be  seen  from  the  following  chapters, 
in  which  the  causes  for  the  introduction  of  the  tax  in  the 
various  coimtries  will  be  considered.  The  following  chap- 
ters will  also  attempt  to  explain  the  nature  and  the  work- 
ing of  the  systems  in  detail,  and  to  clear  up  the  complexi- 
ties resulting  from  the  numerous  methods  of  exemptions, 
assessment  and  rates. 


CHAPTER   II 

LAND  TAXES   IN  AUSTRALASIA' 

§  1.  To  Australasia  the  Western  world  owes  among 
numerous  experiments  in  social  science  the  system  of  taxa- 
tion on  the  unimproved  value  of  land.  Although  we  have 
much  to  learn  from  an  experience  extending  over  several 
decades,  caution  must  be  exercised  in  our  conclusions  re- 
garding the  expediency  of  the  tax  for  countries  trammeled 
by  tradition,  precedent,  slowly  evolved  social  institutions, 
social  classes,  and  other  frictional  forces.  In  respect  to 
the  problem  in  hand,  for  example,  the  attitude  of  the 
colonists  toward  land  monopoly  which  has  been  created 
and  fostered  in  their  own  generation,  through  laws  for 
which  they  were  themselves  responsible,  must  be  unlike 
that  of  their  mother  country  toward  an  institution  cen- 
turies old,  upon  which  the  very  aristocracy  and  military 
glory  of  the  country  are  founded.  Thus,  the  confiscation 
of  the  "  unearned  increment "  has  less  terror  for  those  who 
have  themselves  bestowed  the  right  or  privilege  to  it.^ 
Thus,  too,  it  becomes  comprehensible  how  an  Anglo- 
Saxon  people,  with  the  deepest  respect  for  private  prop- 
erty rights,  could  embody  in  a  recently  proposed  Land 
Bill  ^  a  clause  limiting  the  ownership  of  land  by  an  indi- 
vidual to  the  value  of  £50,000.  This  absence  of  institu- 
tions sanctioned  by  tradition  is  largely  responsible  for  the 
progressive  social  legislation  in  Australasia.  The  untram- 

*  The  Treasurer  General  of  New  Zealand,  Mr.  Ballance,  was  quoted 
as  saying  during  the  campaign  of  1878  that  it  would  be  right  to  tax  away 
the  whole  unearned  increment.  CJ.  New  Zealand,  Pari.  Debates  (1878), 
vol.  xxrx,  p.  21. 

*  In  a  bill  proposed  in  New  Zealand,  1906,  "It  is  made  unlawful  for 
any  one  to  own  more  than  £50,000  worth  of  land  (unimproved  value)." 
The  Australasian,  vol.  Lxxxi,  September  22,  1906,  p.  689. 


20  THE   TAXATION   OF   LAND   VALUE 

meled  character  of  the  colonists  is,  in  fact,  the  key  to  their 
land  laws,  including  the  land  tax. 

§  2.  Bearing  in  mind  this  unique  attitude  of  the  colonist 
toward  the  institution  of  landed  property  and  his  free- 
dom to  make  and  unmake  laws,^  we  need  only  understand 
the  needs  growing  out  of  the  conditions  of  land  tenure  in 
Australasia  to  perceive  the  chief  cause  of  the  taxation  of 
land  value.  The  all-important  problem  which  continues 
to  confront  the  colonies  is  how  to  attract  settlers.  In 
the  early  history  of  the  new  country  a  sound  land  pohcy 
was  of  secondary  importance.  And  since,  as  is  well  known, 
the  bait  that  lures  the  venturesome  to  a  newly  opened 
continent  remote  from  civilization  is  the  possibihty  of 
becoming  "land  rich,"  ^  the  inducements  offered  by  the 
government  at  first  were  chiefly  in  the  form  of  land  grants 
and  orders  from  the  Crown.'  The  futility  of  this  policy 
soon  becoming  apparent,  systems  of  pm-chase  and  lease- 
hold were  devised,  all  of  which,  however,  failed  to  prevent 
the  wholesale  alienation  and  concentration,  in  the  hands 
of  comparatively  few  settlers,  of  large  portions  of  first- 

*  Cf.  Vigouroux,  L' Evolution  Sodale  en  Australasie  (1902),  pp.  417-18. 

*  "Are  we  not  afflicted  with  a  land-grabbing  mania,  an  earth  hunger"? 
Cf.  The  Australian  Economist,  vol.  i.  May,  1888,  p.  52.  "What  allures 
the  one  immigrant  whom  we  care  to  welcome?  The  hope  of  settling  on  hia 
own  land  in  fee."    The  Australasian,  June  20,  1874,  p.  776. 

*  This  system  of  free  grants  continued  until  1831  when  it  was  sup>er- 
seded  by  the  sale  of  land  at  auction.  The  minimum  price  was  at  first 
fixed  at  Ss.,  but  was  increased  later  to  lis.,  then  to  iOs.  per  acre.  The 
terms  of  payment  were  liberal  and  selection  of  the  land  by  the  purchaser 
before  siu-veying  was  freely  permitted.  According  to  the  later  restrictive 
policies  the  maximum  amount  of  country  land  that  could  be  held  by  any 
one  individual  was,  speaking  generally,  from  640  acres  of  the  first-class, 
agricultural  land  to  5000  acres  of  pastoral,  or  third-class  land.  Besides  the 
alienation  by  grants,  squatter  sovereignty  and  sales,  a  system  of  leasing 
for  short  as  well  as  for  perpetual  teniu-e,  subject  to  certain  conditions  of 
actual  residence  on  the  land  was  devised.  To-day  the  systems  of  perpet- 
ual lease  and  of  lease-in-perpetuity  are  much  in  vogue  in  the  colonies. 
For  a  full  and  valuable  study  on  the  land  tenure  in  Australasia  see  Epps, 
Land  Systems  of  Australasia  (1894),  Also  cf.  Reeves,  State  Experiments 
in  Australia  and  New  Zealand,  vol.  i;  Official  Year  Book  of  the  Common- 
wealth of  Australia  (1901-11);  New  Zealand  Offi^d  Year  Book  (1909). 


LAND  TAXES  IN  AUSTRALASIA  21 

class  land  in  each  of  the  colonies,  "to  the  great  embarrass- 
ment of  the  late  comers."  ^ 

The  following  illustrations  of  the  wholesale  alienation  of 
the  land  throw  light  on  the  lax  policies  of  the  government, 
and  on  the  existent  conditions  of  land  tenure  in  the  colo- 
nies. We  read  that  in  New  South  Wales  one  million  acres 
were  transferred  to  a  single  company  at  the  rate  of  18d. 
an  acre.^  In  the  middle  of  the  nineteenth  century,  one 
squatter  occupied  for  a  £10  Ucense  more  than  one  mil- 
lion acres.  Again,  in  1890,  there  were  in  this  colony  121 
freehold  estates  of  over  40,000  acres  each  (comprising 
11,219,484  acres). ^  In  New  Zealand  thirteen  holders  oc- 
cupied 165  runs,  covering  over  2,500,000  acres.*  In  an 
address  before  the  convention  of  the  Australian  Workers* 
Union,  in  1915,  the  following  figures  were  presented  to 
show  the  extent  of  the  concentration  of  land  holdings  in 
Australia:  95  persons  were  in  possession  of  8,418,308 
acres;  361  of  10,408,407  acres;  689  of  9,514,769  acres; 
1567  of  10,754,656  acres.  The  holdings  of  these  2712  per- 
sons therefore  comprised  39,096,140  acres.^ 

^  "The  frontages  have  been  alienated,  the  riparian  rights  have  been 
allowed  to  get  beyond  state  control,  and  the  total  known  sources  of  water 
supply  are  in  the  hands  of  individuals."  The  Australian  Economist,  vol. 
I,  May,  1888,  p.  53.  "New  Zealand  had  seen  the  spectacle,  extraordinary 
for  so  young  a  country,  of  thousands  of  its  most  vigorous  people  going 
abroad  in  search  of  work  and  land."  Lloyd,  Newest  England,  p.  107. 
This  was  said  also  of  the  other  colonies.  Cf.  The  Australasian,  August  9, 
1890,  p.  261. 

*  Reeves,  op.  cit.,  vol.  i,  pp.  204  ff. 

*  Australian  Economist,  vol.  ii,  June,  1890,  p.  38.  It  is  interesting  to 
note  that  of  this  vast  area  only  8385  acres  (not  counting  artificial  grasses) 
were  under  cultivation. 

*  Reeves,  op.  cit.,  p.  243.  Cf.  also  Papers  bearing  on  Land  Taxes,  etc. 
(Cd.  4750),  1909,  p.  72.  In  1891,  7,000,000  acres  of  freehold  and  3,500,000 
of  leasehold,  including  much  of  the  best  land  in  New  Zealand,  according 
to  Mr.  Reeves,  were  held  by  only  584  owners.  Op.  cit.,  vol.  i,  p.  216. 

*  The  Australian  Worker,  March  4,  1915.  That  the  sentiment  with 
regard  to  the  "wasted  heritage"  is  shared  generally  is  evident  from  the 
following  passage  in  The  Australasian,  a  conservative  weekly  published 
in  Melbourne,  Victoria,  and  opposed  to  the  land  taxes:  "Within  thirty 
years  a  population  of  about  three  quarters  of  a  million  will  have  mopped 


22 


THE  TAXATION  OF  LAND  VALUE 


The  conditions  of  land  tenure  in  relation  to  total  area, 
to  population,  and  to  area  under  cultivation  in  Australia 
and  New  Zealand  become  further  apparent  from  the  sub- 
joined table. 

TABLE  SHOWING  THE  PUBLIC  ESTATE,  AREA  UNDER 
CROP,  AND  POPULATION  PER  SQUARE  MILE  IN 
AUSTRALASIA  IN  1905* 


aiau 

Total  area 
in  acret 

Area  alien- 
ated or  in 
procets  of 
alienation 

Area  leased 

Area    un- 
der cuUi- 
tation 

Popu- 
lation 

per 
square 

mile 

New  South  Wales 

198,634,880 
66,245,760 
427,838,080 
243,244,800 
624,588,800 
16.778,000 
835,116,800 

49.970,335 
26,346,802 
17,659,874 
13,467,924 
12,380,035 
6,388,953 
475,366 

123,015,992 
17,994,233 

240,152,615 
89,249,487 

145,769,592 
1,303,383 

103,278.250 

2,840,235 

3,219,962 

622,748 

2,255,669 

364,704 

230,237 

4.38 
13.67 

Queensland 

0.76 

South  Australia 

Western  Australia 

0.40 
0.19 
6.67 

Northern  Territory .... 

Commonwealth 

1.902,447,120 

125,639,289 

720,763,561 

9.433,455 

1.27 

66,861,440 

26,030,264 

17.340.790 

1,723.837 

7  39 

*  Compiled  from  data  in  Anderson,   Six  States  oj  Australia  and  New  Zealand,  1861  to 
1906  (Official  Statistics),  pp.  1,  23,  27. 

It  is  to  be  gathered  from  the  above-mentioned  facts  that 
the  land  problem  in  Australasia  is  acute  not  because  of  a 
scarcity  of  land,  but  because  of  a  scarcity  of  free,  unalien- 
ated, arable  land.  The  population  of  all  the  colonies  is 
somewhat  over  five  millions.  Of  these  about  one  and  one- 
half  millions  live  in  cities.  The  area,  on  the  other  hand, 
exceeds  3,000,000  square  miles,  of  which  at  least  one-third 
is  good  agricultural  and  mineral  land.  In  1909,  the  acreage 
of  occupied  land  in  New  Zealand  was  over  38  millions, 
while  in  the  Commonwealth  of  Australia  more  than  930 
million  acres  were  held  by  individuals  and  companies.^ 

up  S3i  millions  of  acres  in  one  of  the  finest  countries  of  the  world." 
Vol.  XX,  April  15,  1876,  p.  497. 

^  Computed  from  data  in  the  Official  Year  Books  quoted  above.  Under 
alienated  land  was  included  land  held  under  lease  or  license  as  well  as  that 
alienated  and  under  process  of  alienation. 


LAND  TAXES  IN  AUSTRALASIA  23 

This  makes  a  total  of  over  968  million  acres  or  approxi- 
mately one  and  one-half  million  square  miles  in  private 
possession.  It  is  noteworthy,  however,  that  of  this  vast 
territory  under  private  tenure  only  about  26.5  million 
acres,  less  than  three  per  cent,  were,  in  1909,  under  culti- 
vation. Of  the  two  Commonwealths  New  Zealand  shows 
the  denser  settlement,  for  about  forty  per  cent  of  its  occu- 
pied land  was  under  cultivation  as  compared  with  one  per 
cent  in  Australia.  When  we  add  that  each  of  the  seven 
states  has  had  to  pass  laws  providing  for  the  public  re- 
purchase of  land  in  the  interest  of  denser  settlement,  the 
monopolization  of  land  in  Australasia  is  seen  to  be  no  mere 
bugbear.  For  more  than  half  a  century  now,  the  govern- 
ment has  been  attempting  to  undo  the  evil  perpetrated  by 
its  own  legislation  ^  and  to  bring  about  closer  settlement,  a 
policy  which  has  now  become  a  means  of  attracting  immi- 
grants. 

§  3.  Added  to  the  land  legislation,  the  taxation  of  the 
large  estates,  as  a  means  of  overcoming  the  evils  of  land 
tenure,  became  in  the  seventies  a  popular  cry.  The  fact 
that  many  of  the  large  landed  proprietors  were  absentees 
only  aggravated  the  concerted  agitation  of  the  colonies.' 
The  progressive  land  tax  to  "burst  up  the  large  estates" 
was  the  liberal  nostrum  of  that  time.^  The  National  Re- 

*  A  report  on  the  working  of  the  land  system  in  New  South  Wales  calls 
it  a  "  huge  failure,  which  fosters  the  formation  of  large  freehold  estates  in 
the  best  parts  of  the  grazing  country."  The  Australasian,  May  12,  1883, 
p.  593.  "  The 'law  had  made  settlement  hard  for  the  bona  fide  selector  .  . . 
has  built  up  large  estates."  Ibid.,  April  15,  1876.  The  editor  would  have 
done  with  the  "liberal  land  policy." 

'  '  The  following  quotation  was  uttered  by  one  who  regarded  the  tax 
as  a  confiscatory,  penal  tax:  "Many  of  the  latter  worthies  (absentees) 
left  the  coimtry  for  the  more  promising  sphere  of  operations  that  New 
South  Wales  affords,  and  we  have  not  even  the  benefit  of  their  ill-gotten 
gains  being  expended  in  the  country."  The  Australasian,  September  SO, 
1876,  pp.  432-33. 

*  "The  proposed  tax  upon  absentees  ...  is  merely  a  concession  like 
the  little  bit  of  progressive  land  tax  to  a  mere  popular  cry."  Ibid.,  vol. 
XIX,  July  24,  1875,  p.  113.  "A  progressive  land  tax  is  popular  with  a 


U  THE  TAXATION  OF  LAND  VALUE 

form  League,  to  which  the  university  professors  of  eco- 
nomics belonged,  was  active  in  the  movement  of  checking 
landed  monopoly  and  absenteeism.  Under  this  influence 
Mr.  Berry  ^  in  Victoria  and  Sir  George  Grey  ^  in  New  Zea- 
land came  into  office.  Already,  in  1875,  a  progressive  land 
tax '  was  proposed  in  Victoria,  but  was  withdrawn.  In 
1877,  however,  the  will  of  the  people  was  carried  out  and 
a  land  tax  (not  on  the  unimproved  value,  however)  *  was 
passed  by  both  houses  of  Parliament.  The  first  tax  on 
unimproved  value  was  enacted  the  following  year  in  New 
Zealand  through  the  efforts  of  John  Ballance,  Treasurer, 
and  Sir  George  Grey,  Premier. 

The  purpose  of  the  tax  is  revealed  somewhat  in  the  fol- 
lowing citation  from  a  speech  of  Mr.  Ballance:  ^  "And  here 
I  may  take  the  opportunity  of  disclaiming  and  repudiating 
the  charge  which  is  sometimes  made,  that  the  government 
have  in  contemplation  a  class  tax.  The  very  contrary  is 
the  fact.  We  hold  that  the  system  which  we  propose  to 
correct  has  worked  unfairly  in  the  past;  that  it  has  fav- 
ored the  escape  of  taxation  of  the  greater  portion  of  the 
wealth  of  the  colony,  and  has  implanted  a  strong  sense  of 
injustice  in  the  minds  of  the  wage  class.  The  readjustment 

certain  class  —  party  of  anarchy  and  confusion  —  simply  because  it 
aims  at  the  gradual  confiscation  of  landed  estates."  Ibid.,  September 
SO,  1876,  pp.  432-33.   Cf.  also  ibid.,  February  17,  1877,  p.  209. 

^  "Mr.  Berry  declares  that  he  would  be  delighted  if  within  twelve 
months  every  large  estate  was  divided  so  that  the  tax  did  not  bring  in  a 
shilling  into  the  revenue."   Ibid.,  April  2,  1881,  p.  432. 

*  Grey  said,  "Those  who  acquire  land  by  unlawful  means  and  so  pre- 
vent its  cultivation  are  enemies  of  the  human  race."  Ibid.,  December 
23,  1876,  p.  819. 

*  The  proposed  bill  was  "The  Land,  Property  and  Income  Tax."  The 
land  tax  was  to  be  charged  on  lands,  exclusive  of  buildings,  at  the  rate  of 
Is,  in  the  pound  between  £80  and  £200  annual  value,  and  at  Is.  6d.  in 
cases  above  £200.  The  annual  value  was  assumed  to  be  five  per  cent  on 
the  capital  value  of  the  fee.   Ibid.,  vol.  xx,  March  25,  1876,  pp.  400-01. 

*  The  tax  fell  only  on  the  large  estates,  and  the  principle  of  the  tax 
on  land  value  was  violated  by  the  provisions  of  valuation.  See  infra, 
§  10. 

'  Quoted  in  The  Australasian,  September  17,  1878,  p.  305. 


LAND  TAXES  IN  AUSTRALASIA  96 

we  hope  to  effect  will  tend  to  efface  the  inequalities  I  have 
referred  to;  and  instead  of  promoting  hostilities  between 
classes  will  remove  the  causes  which  have  been  gradually 
estranging  them.  .  .  .  We  believe  that  no  form  of  wealth 
is  more  legitimately  called  upon  to  contribute  a  portion  of 
the  public  revenue  of  the  colony  than  the  value  of  land 
minus  improvements,  which  for  brevity,  I  shall  call  the 
unimproved  value,  as  no  other  commodity  increases  so 
rapidly  in  value  from  the  increase  of  population  and  the 
natural  progress  of  a  country.  By  exempting  improve- 
ments, we  award  a  premium  to  industry  and  discourage  a 
system  of  speculation  which  thrives  only  upon  the  labor  of 
others."  The  life  of  this  measure,  however,  was  short. 
With  the  overthrow  of  the  liberal  ministry  in  the  following 
year  the  tax  was  repealed.^ 

If  each  law  relative  to  the  taxation  of  unimproved 
value  for  state  purposes  were  reviewed,  the  charge  of  class 
legislation  repudiated  by  Mr.  Ballance  would  be  found  to 
be  substantiated.  Not  one  would  be  found  which  was  not 
actuated  by  the  same  motive,  the  disintegration  of  the 
large  estates  and  of  absentee  holdings.*  It  was  also  the 
avowed  purpose  of  the  "Labor  Parliament"  in  enacting 
the  Commonwealth  tax  in  1910.'  Indeed,  the  provisions 
of  the  acts  themselves,  such  as  the  graduated  scale,  the 
exemption  of  estates  of  less  than  £5000,  the  absentee 

*  "The  great  landowners  trembled.  They  believed  it  was  putting  in 
the  thin  edge  of  the  wedge.  They  rallied  all  their  forces  and  in  one  year 
the  tax  was  repealed  and  Sir  George  Grey  was  punished  by  expulsion." 
Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  69, 

*  Cf.  New  Zealand,  Pari.  Debates  (1878,  1891,  1893,  1896,  1907).  The 
Australasian,  vols.  LVi,  Lix,  Lxxxrv,  lxxxvi.  "With  such  figures  as 
these,  evidencing  an  earth  hunger  of  an  unhealthy  character,  the  sooner 
a  land  tax  is  imposed  the  better  will  it  be  for  the  development  of  the  col- 
onies' resources."  Australian  Economist,  vol.  n,  Jime,  1890,  p.  38. 

'  Commonwealth  of  Australia,  Pari.  Debates  (1910),  vols,  lv,  lvi, 
LVii.  A  candidate  in  the  election  of  1910  is  reported  to  have  said:  "The 
Labor  Party's  chief  plank  at  this  election  is  to  penalize  the  owners  of  the 
big  estates,  so  that  it  will  be  unprofitable  to  hold  them."  Quoted  by 
Turner,  iThe  First  Decade  of  the  Australian  Commonwealth  (1911),  p.  286. 


26  THE  TAXATION  OF  LAND  VALUE 

rates,  give  evidence  that  the  enactment  of  the  tax  on  the 
unimproved  value  of  land  was  directed  against  the  holders 
of  large  estates. 

§  4.  Was  the  land  tax,  then,  discriminatory  class  legis- 
lation pure  and  simple?  Was  it  mere  pretense  on  the  part 
of  the  Minister  of  State  that  the  exigency  of  the  treasury 
required  new  sources  of  revenue?  An  understanding  of  the 
fiscal  policy  of  the  colonies  throws  Hght  on  this  question. 
For  purposes  of  analysis,  the  fiscal  problems  of  the  federal 
and  state  governments  must  be  kept  distinct  from  the 
problem  of  local  revenue. 

The  weakness  of  the  state  finances  during  the  seventies 
and  eighties  is  attributable  to  several  causes.  First,  the 
indebtedness  of  the  colonies  and  the  over-expenditure  for 
purposes  of  public  improvements  of  all  kinds  produced 
an  ever- increasing  drain  on  the  treasury.^  Secondly,  the 
remission  of  the  tariff  duties  in  some  of  the  states  caused  a 
deficit.  2  Thirdly,  the  loss  of  the  land  fund  ^  further  in- 
creased this  deficit  in  the  colonies.  Under  these  circum- 
stances direct  taxation  had  to  be  resorted  to.  It  is  signifi- 
cant, therefore,  that  synchronously  with  the  movement 
to  reduce  the  tariff  duties  which  had  obviated  for  a  long 
time  the  necessity  of  direct  taxation,  the  land  taxes  were 
either  proposed  or  enacted. 

Now,  it  might  be  argued  that  the  fiscal  needs  of  the 
state  government  directly  brought  the  land  taxes  into 

*  About  1880  there  was  a  deficit  in  the  treasuries  of  all  the  colonies 
due  to  over-expenditure.  The  Australasian,  August  14,  1880,  pp.  208- 
09.    Again  in  1887.   Cf.  ibid.,  August  20,  1887,  p.  360. 

'  The  land  tax  was  proposed  as  a  substitute  for  the  remitted  tariff  in 
Victoria  in  1875,  and  again  in  1877,  when  the  free  traders  succeeded  in 
reducing  the  tariff,  and  when  the  tax  was  passed.  Cf.  The  Australasian, 
August  21,  1875;  January  20,  1877,  p.  80;  July  21,  1877,  p.  80;  Septem- 
ber 7,  1878,  p.  305.  In  New  South  Wales,  the  land  tax  became  a  law  at 
the  same  time  that  the  reduction  in  customs  took  place,  in  1895.  Ibid., 
May  25,  1895,  p.  989. 

*  As  the  land  became  appropriated  the  revenue  from  its  sale  fell  off. 
Cf.  ibid.,  August  14,  1880,  p.  208.  Coghlan,  A  Statistical  Account  of  the 
Seven  Colonies  of  Australasia  (1892),  p.  274. 


LAND  TAXES  IN  AUSTRALASIA  27 

existence.  This,  indeed,  seems  plausible  when  the  unpop- 
ularity of  the  income  and  general  property  taxes  in  Aus- 
tralasia is  considered,  for  the  latter  usually  constitute  the 
most  practical  successors  of  the  protective  tariff.^  That 
the  land  taxes,  however,  were  not  intended  as  substitutes 
for  the  income  and  general  property  taxes  is  clear  from  the 
fact  that  in  almost  all  cases  they  are  incorporated  with 
the  income  tax  provisions,  and  from  the  fact  that  the  land 
taxes  constitute  but  a  small  percentage  of  the  total  tax 
revenue,'^  It  is  difficult,  therefore,  to  believe  that  the  fis- 
cal exigencies  did  more  than  offer  the  occasion,  the  oppor- 
tune moment,  for  the  enactment  of  a  popular  reform. 
This  explains,  moreover,  why  the  land-tax  propaganda  was 
ineffective  during  the  years  of  plenty  and  why  the  land- 
tax  bill  failed  of  passage  in  South  Australia  in  1890.'  It 
also  explains  why  it  took  the  Labor  Party  a  decade  to  en- 
act the  land-tax  bill,  although  from  the  first  they  practi- 
cally controlled  the  Federal  Parliament.*  So  long  as  the 
treasury  was  filled,  the  propaganda  was  carried  on  in  vain. 
For  federal  and  state  purposes,  therefore,  the  fiscal  needs 

"  *  So  unpopular  was  the  income  tax  in  Tasmania  that  a  ministry  actu- 
ally refused  to  collect  it.  The  Australasian,  April  27,  1907,  p.  989.  Cf. 
also  ibid.,  March  4, 1876;  July  23, 1881,  p.  113.  "For  bringing  in  revenue 
the  property  tax  was  an  efficient  instrument.  It  soon  became,  however, 
exceedingly  unpopular,  not  only  among  Radical  theorists,  but  among 
commercial  men,  shopkeepers  and  manufacturers.  . .  .  They  [the  farmers] 
contrasted  their  lot  with  that  of  comfortable  town-dwelling  profes- 
sional men  whose  substantial  incomes  went  wholly  untaxed,  and  who 
paid  merely  on  savings  and  investments.  It  is  necessary  to  draw  atten- 
tion to  the  severity  and  unpopularity  of  the  property  tax,  for  it  was  these 
which  enabled  the  land-taxers  to  win  the  day  in  1891."  Papers  Bearing 
on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  69.  Cf.  also  New  Zealand,  Pari. 
Debates  (1891),  vol.  Lxxrv,  p.  24. 
'  See  infra,  chapter  iii,  §  7. 

•  There  was  no  need  of  revenue.  The  Australasian,  August  9,  1890, 
p.  261.  "The  revenue  aspect  was  a  purely  secondary  consideration." 
Ibid.,  February  24,  1906,  p.  455.  As  to  the  proposed  federal  land  tax,  to 
create  a  fimd  to  carry  out  the  pension  scheme  was  said  not  to  be  the  gen- 
uine reason.   Ibid.,  April  3,  1909,  p.  849. 

*  Ibid.,  1904-09,  vols,  lxxvi-lxxxvu. 


98  THE  TAXATION  OF  LAND  VALUE 

aided,  but  were  not  the  cause  of  the  enactment  of  the  land- 
tax  laws. 

§  5.  Turning  from  the  consideration  of  the  land  taxes  for 
state  and  federal  purposes  to  that  of  the  local  rates  on 
unimproved  value,  we  see  that  the  situation  is  very  differ- 
ent. Conceding  that  large  holdings  and  absenteeism  were 
thorns  in  the  side  of  the  general  public  and  exerted  an 
inJBluence  in  the  adoption  of  rating  on  the  unimproved 
value  of  the  land,  we  find  that  other  more  fundamental 
causes,  chiefly  fiscal,  were  responsible  for  the  tax  agitation 
in  the  local  bodies.  It  is  noteworthy  that  the  local  taxes 
on  unimproved  value  antedated  the  state  taxes.  Already, 
in  1878,  this  system  of  rating  was  in  vogue  in  the  colonies.^ 
In  tracing  the  causes  that  led  to  the  ready  adoption  of  the 
tax  for  local  purposes,  it  is  first  necessary  to  point  out  that 
until  the  nineties  the  local  revenue  in  the  Australasian 
colonies  consisted  chiefly  of  the  "endowments,"  ^  or  grants 
apportioned  among  the  local  divisions  by  the  state  govern- 
ment. Hence  there  was  little  need  of  levying  rates,  es- 
pecially as  education  and  local  improvements  were  mainly 
under  state  jurisdiction.^  In  the  eighties,  however,  as  the 
expenditures  of  the  states  increased  without  a  correspond- 

*  "It  is  reassuring  to  notice  a  growing  feeling  among  municipalities 
in  favor  of  rating  on  land,  irrespective  of  improvements."  Mr.  Foxall, 
"The  Principles  of  Taxation,"  in  The  Australian  Economist,  vol.  i.  May 
12,  1888,  p.  45.  "It  will  be  recollected  that  at  the  late  municipal  confer- 
ence a  resolution  was  carried  in  favor  of  placing  municipal  taxation  on  the 
unimproved  value  of  land  and  in  the  proposed  new  'Local  Government 
Bill  *  municipalities  are  empowered  on  certain  conditions  to  carry  this 
into  effect,  and  it  is  more  than  probable  that  the  Legislature  will  en- 
dorse this  power."  Ibid.,  vol.  ii,  March  20,  1890,  p.  1.  See  also  New 
Zealand,  Pari.  Debates  (1878),  vol.  xxrx,  p.  17. 

*  The  "endowment"  is  an  annual  subvention  voted  by  the  state  gov- 
ernment at  fixed  intervals  to  the  municipality  or  other  local  body  and  is 
generally  a  sum  proportioned  to  the  revenue  raised  by  the  community 
through  local  rates.  In  other  words  the  "endowment"  is  proportioned 
according  to  the  fiscal  needs  of  the  local  authority. 

*  Until  the  "Local  Government  Bill"  was  passed  in  New  South  Wales, 
all  local  improvements  also  were  imdertaken  by  the  state  government. 
Cf.  The  Australasian,  August  5,  1905,  p.  325. 


LAND  TAXES  IN  AUSTRALASIA  99 

ing  increase  in  the  revenue,  attempts  were  made  by  some 
of  the  states  to  reduce  the  municipal  '*  endowments."  In 
Victoria,  for  example,  the  exigencies  of  the  treasury,  in 
1880,  necessitated  such  a  reduction.^  This  policy  in  Vic- 
toria, however,  did  not  involve  so  important  a  change  in 
local  government  as  occurred  in  Queensland  in  1890. 

The  finances  of  Queensland  were  in  that  year  in  a  pre- 
carious condition,  and  the  heavy  tax  levied  on  property 
to  pay  the  municipal  "endowments,"  led  to  a  change  in 
the  ministry.  Griffith's  Coalition  Government  came  into 
power  and  succeeded  in  putting  through  the  legislature  the 
"Valuation  and  Rating  Bill  of  1890,"  by  which  the  powers 
of  the  local  authorities  were  extended  to  raise  revenue 
by  rating  on  the  unimproved  value  of  land.  In  this  way 
the  central  government  relieved  itself  of  subsidizing  the 
local  bodies  and  incidentally  introduced  the  taxation  of 
unimproved  value.  ^  As  to  New  South  Wales,  the  motive 
which  in  1905  actuated  the  central  government  to  relin- 
quish the  state  land  tax  in  favor  of  the  shires,  and  then  of 
the  municipalities,  was  not  the  fiscal  need,  although  a  fis- 
cal problem  was  involved.  It  was  the  desire  to  shift  to  the 
local  bodies  some  of  the  functions  of  government,  e.g.,  the 
administration  of  local  works.^  The  legislation,  by  which 
the  state  land  tax  was  relinquished  to  the  local  bodies  was 
therefore  in  the  interest  of  local  autonomy. 

But  to  say  that  the  extension  of  local  government  was 
the  outcome  of  fiscal  conditions  explains  nothing  as  to  the 
cause  of  adopting  the  new  system  of  levying  rates.  The 
reasons  for  choosing  this  tax  will  be  found  in  certain  ad- 
vantages claimed  for  it  in  the  cases  where  it  was  in  use. 

1  The  Australasian,  October  30,  1880,  p.  560. 

*  The  deficit  in  Queensland  amounted  to  £1,300,000.  The  Morehead 
Ministry  had  proposed  an  excise  tax  for  state  purposes.  This  proved 
unpopular.  His  successor,  Mr.  Griffith,  had  always  favored  the  tax  on 
unimproved  value  and  urged  it  with  success.  The  Australasian,  August 
8,  1891,  p.  265.  Cf.  also  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750), 
1909,  pp.  199-200;  and  (Cd.  3890),  1908,  pp.  6/. 

*  The  Australasian,  August  5,  1905,  p.  325. 


80  THE  TAXATION  OF  LAND  VALUE 

These  reasons  are  concisely  summarized  in  the  following 
preamble  of  a  proposed  bill  of  1891:  ^  "Whereas  the  value 
of  land  within  a  municipality  is  increased  by  the  expen- 
diture of  rates;  and  whereas  the  benefit  of  all  expenditure 
of  public  moneys  ought  to  accrue  to  the  public  and  not  to 
private  owners;  and  whereas  the  present  assessment  of 
rates  throws  the  burden  of  municipal  taxation  upon  in- 
dustry and  enriches  the  owners  of  land  at  the  expense  of 
the  rate  payers;  and  whereas  such  a  method  of  raising  rates 
discourages  industry,  prevents  settlement,  and  is  other- 
wise inequitable,  and  unsocial.  .  .  ." 

In  other  words,  it  is  here  argued  that:  (1)  local  taxes 
should  be  levied  according  to  the  principle  of  benefit;  that 
(2)  the  value  increment  accruing  from  the  appreciation  in 
the  value  of  the  land  is  socially  created  and  belongs  to  the 
community;  that  (3)  industry  is  hampered  by  the  taxa- 
tion of  improvements;  that  (4)  under  the  system  of  annual 
value  rating,  land  is  withheld  from  utilization;  and  that 
(5)  an  unequal  distribution  of  wealth  is  fostered  and  immi- 
gration prevented  through  the  creation  of  large  landed  es- 
tates and  absenteeism.  In  new  democratic  communities, 
benefit,  i.e.,  the  service  which  the  taxpayer  receives  in 
return  for  his  contribution,  rather  than  ability  to  contrib- 
ute, is  regarded  as  the  fair  basis  of  taxation.  In  fact, 
where  land  is  the  principal  source  of  wealth  and  income, 
and  the  ratepayers  are  the  owners  of  land,  the  value  of 
the  land  is  not  alone  the  measure  of  the  benefit,  but  also 
of  the  ability  to  contribute.  And  the  theory  of  "socially 
created  land  value"  is  but  an  application  of  the  benefit 
theory  which  rests  on  the  assumption  that  the  expendi- 
ture and  increase  of  population  influence  the  value  of  the 
land.  Again,  in  such  communities  it  is  very  obvious  that 
the  taxation  of  improvements  tends  to  discourage  the 
employment  of  capital  and  to  put  a  premium  on  the  with- 

*  The  Australian  Economist,  vol.  ii,  September,  1891,  p.  152,  Mr.  B.  R. 
Wise's  bill  to  amend  the  Municipalities  Act  of  New  South  Wales. 


LAND  TAXES  IN  AUSTRALASIA  81 

holding  of  unused  land.^  In  fact,  in  a  new  country  where 
capital  is  scarce,  the  rate  of  interest  high,  and  land  the 
chief  source  of  wealth,  the  proposal  to  exempt  improve- 
ments and  to  tax  the  capital  value  of  the  land  will  meet  the 
approval  not  alone  of  the  landless  urban  dweller  but  of 
the  enterprising  farmers  as  well.''  And  lastly,  the  resent- 
ment of  the  ratepayers  toward  the  absentee  owner  of  un- 
improved land  ^  who  escapes  taxation  and  yet  reaps  the 
benefit  of  the  appreciation  in  the  value  of  the  land,  is 
readily  comprehensible. 

§  6.  But  it  may  be  asked,  was  not,  then,  the  propaganda 
of  the  Single  Taxers  instrumental  in  bringing  the  land 
taxes  into  operation.  The  query  is,  indeed,  both  plausible 
and  justified  in  view  of  the  situation.  First,  the  writings 
of  Henry  George  and  Alfred  Wallace  *  were  frequently 
C^^uoteA  and  discussed.^  Secondly,  the  activity  of  the  Single 
Taxers,  especially  after  George's  visit  to  Australasia  in 
1890,  was  unremittent.  Thirdly,  George's  presence  and 
his  popularity  strengthened  the  cause,  "his  intellectual 
charm"  and  "fine  speaking  powers"  winning  many  con- 
verts.^ Unquestionably  in  a  country  where  land  specula- 
tion and  land  monopoly  were  rife,  and  the  land  policy  of 
the  government  was  a  recognized  failure,  the  Single  Taxers 
discovered  a  fertile  field  for  their  work.  ^ 

^  The  Australian  Economist,  vol.  i,  May,  1888,  p.  45.  Also  New  Zea- 
land, Pari.  Debates  (1878),  vol.  xxix,  p.  58. 

'  Papers  Relative  to  the  Working  of  Taxation  on  the  Unimproved  Value 
in  Queensland  (Cd.  3890),  1908,  pp.  6/. 

»  New  Zealand,  Pari.  Debates  (1896),  vol.  xcii,  p.  632. 

*  Land  Nationalization  (1882). 

*  Cf.  The  Australian  Economist,  vol.  i,  April  14,  1888.  The  taxation  of 
land  and  its  nationalization  were  frequently  discussed  at  the  meetings 
of  the  Australian  Economic  Association,  and  also  in  Parliament. 

8  "Mr.  George's  visit  is  bearing  fruit  in  the  shape  of  a  very  general 
interest  being  everywhere  manifested  in  the  economic  problems  he  has 
so  eloquently  proposed  and  so  earnestly  desires  to  see  solved."  The 
Australian  Economist,  vol.  ii,  March,  1890,  p.  19.  Cf.  also  ibid.,  vol.  i. 
May  26,  1888,  p.  49.  The  Australasian,  April  6,  1890,  p.  672;  March  29, 
1890,  p.  628. 

^  "It  is  a  fact  well  worthy  of  the  attention  of  the  advocates  of  high 


/: 


y 

82  THE  TAXATION  OF  LAND  VALUE 

Nevertheless,  admitting  the  influence  that  the  Single 
Tax  leagues  exerted  in  the  movement,  there  is  conclusive 
evidence  that  the  conception  of  taxing  on  unimproved 
value  has  had  a  spontaneous  growth  in  Australasia  ^  and 
that  the  Utopian  philosophy  of  the  Single  Tax  is  accepted 
by  but  a  small  group  of  devotees.'^  First,  the  system  was 
in  vogue  before  the  eighties  and  before  even  the  publica- 
tion of  "Progress  and  Poverty"  in  1879.  Second,  the  Vic- 
torian Land  Tenure  Reform  League  had  already  in  1872 
embodied  the  Single  Tax  doctrine  in  its  platform.^  Third, 

tari£F  that  the  single-taxers  have  made  converts  among  the  land  owners 
themselves."  Ibid.,  November  3,  ISQ*,  p.  793. 

*  It  might  be  argued  with  reason  that  neither  George  nor  the  Austral- 
asians were  the  original  founders  of  the  Single  Tax  doctrine,  which  can 
be  traced  back  to  Spence  {Rights  of  Man,  1775),  Ogilvie  {Essay  on  the 
Right  to  Property  in  Land,  1782),  Gossen  {Die  Entwicklung  der  Gesetze 
des  menschlichen  Verkehrs,  1854>),  Walras  {Th6orie  Critique  de  Vim-pot, 
1861)  and  others. 

2  That  the  Single  Tax  organizations  are  no  larger  than  those  in  this 
country  may  be  gathered  from  the  following  facts:  (1)  the  guaranteed 
circulation  of  the  Liberator,  the  organ  of  the  New  Zealand  Land  Values 
League,  is  5000  copies  per  month  and  there  are  two  copies  monthly;  (2) 
the  total  receipts  for  the  Joseph  Pels  Pund  of  New  Zealand  from  March 
30  to  October  15,  1913  (including  all  subscriptions  to  the  Liberator)  were 
only  about  £219.  This  sum  is  small  considering  Mr.  Fels's  offer  to  dupli- 
cate the  amount  contributed. 

'  The  following  quotations  are  from  a  circular  of  the  League  which 
appeared  in  1872:  — 

"The  land  is  the  inalienable  property  of  the  inhabitants  of  every  coun- 
try throughout  all  generations." 

"  'No  consideration  ought  to  be  paramoimt  to  that  of  making  the  land 
available  in  the  highest  degree  for  the  production  of  food  and  the  em- 
ployment of  industry.'  " 

"Selling  the  fee-simple  of  the  land  is  a  political  misdemeanoiu*,  as 
opposed  to  justice  and  reason,  as  it  has  proven  injurious  to  the  material 
and  moral  interests  of  society." 

"The  alienation  of  the  State  lands  gives  to  the  landowner  the 
whole  improvement  in  value  from  the  increase  of  population  and  national 
works.  The  State  Landlord  preserves  all  for  the  benefit  of  the 
people." 

"  Land  is  the  State  capital,  the  primal  source  of  food  and  wealth,  and 
in  parting  with  it  our  legislators  have  not  only  most  iniquitously  limited 
the  field  of  profitable  employment,  but  have  biu"dened  the  people  need- 
lessly with  double  taxation  —  the  one  a  highly  unjust  system  to  provide 


LAND  TAXES  IN  AUSTRALASIA  33 

t]^  study  of  the  taxes  as  enacted  makes  it  apparent  that 
no  close  analogy  exists  between  the  two  systems.  The 
numerous  exemptions,  low  rates,  progressive  scales  surely 
do  not  reflect  the  striving  of  the  Single  Taxers  to  make  the 
land  tax  the  sole  tax.^  In  fact,  since  the  enactment  of  the 
taxes,  no  attempts  have  been  made  as  was  predicted,  to 
tighten  the  screw  or  to  approach  anything  like  the  con- 
fiscation or  the  nationalization  of  the  land.  In  those  cases, 
where,  as  in  New  Zealand,  the  graduated  scale  of  rates  has 
been  increased,  the  purpose  has  clearly  been  the  disin- 
tegration of  the  large  estates,  nothing  more.  The  land 
taxes,  as  well  as  other  social  legislation,  are  accepted  by  a 

a  general  revenue;  the  other  a  direct  tax  on  food  and  the  necessaries  of 
life,  to  enable  landlords  to  live  in  idleness  by  the  labor  of  others." 

"A  rent  on  State  lands  being  light,  and  for  a  manifest  benefit,  would 
meet  all  the  requirements  of  a  just  and  desirable  means  of  raising  revenue. 
It  would  be  easily  and  cheaply  collected,  and  would  greatly  reduce  the 
expenses  of  government  by  rendering  unnecessary  some  of  the  present 
costly  and  otherwise  hurtful  departments." 

"While  strictly  preserving  the  right  of  ownership  in  land  for  future 
generations,  the  greatest  possible  facilities  for  actual  and  productive  settle- 
ment may  be  afforded." 

"The  advantages  of  ahnost  free  land,  and  the  total  absence  of  taxation, 
would  ensure  an  unexampled  condition  of  steady  progress  and  general 
prosperity." 

"  With  an  absolute  freedom  from  taxation,  and  fvU  and  unfettered  scope 
for  industry,  every  inhabitant  of  the  country  would  enjoy  a  beneficial  in- 
terest from  his  share  in  the  state  lands,  whether  occupying  a  portion  of  these 
or  not." 

"  'The  best  political  economy  is  the  care  and  culture  of  men.'  And 
such  a  use  of  the  common  patrimony,  the  gift  of  God  to  all,  would  not 
only  promote  to  the  utmost  the  material  welfare  of  society,  but  would 
raise  us  mentally  in  the  scale  of  nations,  by  affording  the  most  liberal 
culture  of  which  each  is  capable;  special  privileges,  which  should  be 
deemed  the  inherent  right  of  every  member  of  the  community." 

(Italics  by  the  present  writer.)  Quoted  in  Laveleye's  De  la  PropriH& 
et  ses  Formes  Primitives,  pp.  S46  jf. 

^  The  local  rates  on  unimproved  value  even  in  Queensland,  where  they 
constitute  practically  the  sole  source  of  revenue,  are  'low.  In  fact,  the 
secret  of  the  successful  working  of  the  tax  there  has  been  claimed  to  be 
the  low  rate  of  tax,  kept  so  because  of  the  constant  great  appreciation 
in  land  value.  Cf.  Papers  Relative  to  the  Working  of  Taxation,  etc.  (Cd. 
8890),  1908,  pp.  9,  20. 


(y 


84  THE  TAXATION  OF  LAND  VALUE 

large  number  of  the  Australasian  population,  "whose 
tendencies  are  very  individualistic  and  who  contest  with 
energy  the  influence  of  the  Labor  Party."  ^ 

Summarizing  the  causes  which  called  the  taxes  on  un- 
improved value  into  being,  we  may  say  that  the  land  taxes 
for  federal  and  state  purposes  owe  their  origin  chiefly  to 
the  conditions  of  land  tenure  in  the  colonies,  and  that  the 
local  rates  were  adopted  because  of  the  fiscal  expediency 
of  the  system.  Furthermore,  the  fiscal  exigencies  merely 
furnished  the  occasion  or  opportunity,  and  the  activity  of 
the  Single  Taxers  the  necessary  propaganda  for  the  enact- 
ment of  the  laws. 

§  7.  From  the  above  analysis  of  the  causes  of  enact- 
ment, we  turn  to  the  study  of  the  taxes  themselves.  The 
following  is  a  summary  of  the  important  considerations 
with  regard  to  the  legislation,  administration  and  working 
of  the  land  taxes  in  Australasia;  — 

(1)  Rates  of  tax  and  modes  of  assessment. 

(2)  Methods  of  valuation  and  administration. 

;    (3)  Revenue  yielded,  and  other  fiscal  considerations. 

(4)  Revisions  in  the  laws  to  carry  out  their  purpose. 

(5)  Social  and  economic  effects  of  the  taxes. 

It  is  first  necessary  to  point  out  the  extent  in  the  colonies 
of  the  system  of  the  taxation  on  the  unimproved  value. 
The  tax  for  state  purposes  is  now  levied  by  New  Zealand 
and  five  of  the  six  Australian  states,  Queensland  being  the 
only  one  that  has  never  levied  a  state  land  tax.  Since 
1905-06  New  South  Wales  has  received  only  a  slight  reve- 
nue from  the  land  tax,  the  state  having  relinquished  the 
tax  in  favor  of  the  shires  and  municipalities  which  have 
adopted  rating  on  the  unimproved  value.  It  is  important 
to  note  in  regard  to  the  state  land  tax  that  in  each  case  it 
is  only  one  out  of  a  number  of  sources  of  public  revenue. 
Thus  customs  duties,  excise  duties,  income  taxes,  death 
duties,  licenses,  etc.,  form  part  of  the  fiscal  system  of  each 
*  Vigouroux,  L'Evolution  Sociale  en  Australasie,  p.  222. 


LAND  TAXES  IS  AUSTRALASIA  35 

of  the  colonies.  Furthermore,  the  land  tax  is  in  almost  all 
cases  levied  in  conjunction  with  the  income  tax,  i.e.,  under 
the  same  administrative  machinery  and  incorporated  in 
the  same  laws.  Again,  it  is  noteworthy,  that,  before  1910, 
the  land  taxes  in  both  Victoria  and  Tasmania  were  levied 
on  the  capital  value  of  the  land  plus  the  improvements.* 

At  present  the  local  authorities  empowered  to  levy  rates 
on  the  unimproved  value  of  the  land  are  those  in  New 
Zealand,  New  South  Wales,  Queensland,  South  Australia, 
and  Victoria.  Accordingly,  all  the  local  bodies  in  Queens- 
land, practically  all  in  New  South  Wales,  and  numerous 
communities  in  New  Zealand,  levy  taxes,  called  rates, 
according  to  this  system.  In  South  Australia,  however, 
no  municipality  had  until  1906  taken  advantage  of  the 
privilege  extended  to  it  in  1893. ^  In  Queensland  the  tax 
on  unimproved  value  for  local  purposes  is  practically  the 
single  tax.  So  is  it  in  those  bodies  in  New  Zealand  which 
have  adopted  the  system.  In  New  South  Wales  all  general 
rates  in  both  the  shires  and  municipalities  must  be  levied 
on  the  unimproved  value;  while  the  levy  of  additional 
general  rates  in  the  municipalities,  and  of  all  special  rates 
on  the  unimproved  value  is  optional  with  the  local  author- 
ity. In  1914  rating  on  unimproved  value  was  made  op- 
tional with  the  local  authorities  in  Victoria.' 

It  is  difficult  to  measure  the  extent  of  the  prevalence  of 
the  system  of  rating  on  unimproved  value,  for  in  many 
communities  rating  on  this  basis  prevails  even  where  the 
State  Act  has  not  authorized  its  practice.  Certain  it  is, 
however,  that  the  adoption  of  the  system  is  proceeding 
rapidly.  If,  as  is  so  generally  feared,  a  land  valuation  bill 

■  *  In  Victoria  it  was  not  the  intention  of  the  legislators  to  enact  a  realty 
tax,  as  it  was  in  Tasmania;  nevertheless,  because  of  the  peculiar  method 
of  valuation  the  purpose  of  the  tax  was  frustrated,  the  tax  burdening  the 
grazing  industry.  See  infra,  §  10. 

'  Papers  Bearing  on  the  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  114. 

'  By  the  enactment  of  the  "Rating  on  Unimproved  Values  Act, 
1914."  Victoria,  4  Geo.  V,  No.  58478. 


^' 


86  THE  TAXATION  OF  LAND  VALUE 

is  the  harbinger  of  local  rating  on  land  value,  ^  then  the 
adoption  of  the  system  in  Tasmania,  with  its  Land  Valua- 
tion Act  of  1909,^^  may  be  predicted.  In  Western  Australia 
many  local  bodies  rate  on  this  basis  even  though  no  State 
Act  to  the  effect  exists.^  In  this  state,  indeed,  the  "Roads 
Act,  1902"  gave  Road  Boards  the  option  of  rating  on  the 
basis  of  the  unimproved  annual  (i.e.,  rental),  or  capital, 
value,  except  in  case  of  mining  and  pastoral  leases  to  be 
rated  on  annual  value  exclusively.  In  accordance  with  this 
privilege,  out  of  105  Boards,  57  now  rate  on  unimproved 
value,  two  rate  partly  on  annual  and  partly  on  unimproved 
value,  while  the  rest  rate  on  annual  value.* 

In  1910,  the  land  tax  was  made  a  source  of  federal  reve- 
nue in  the  Commonwealth  of  Australia.  Like  the  state 
land  taxes  this  one  constitutes  a  small  percentage  of  the 
total  tax  revenue  of  the  Commonwealth.  However,  taking 
all  the  systems  together,  federal,  state,  and  local,  the  bur- 
den on  land  in  Australasia  is  considerable.  An  analysis  of 
the  state,  local,  and  federal  systems  follows. 

§  8.  We  may  first  consider  the  tax  for  state  purposes  in 
New  Zealand,  where  it  has  been  in  operation  for  about  a 
quarter  of  a  century.^  The  changes  that  the  provisions  of 
the  land-tax  law  have  undergone  in  this  colony  since  1891 
are  noteworthy.  These  will  be  treated  in  the  following 
analysis  of  the  important  provisions  relating  to  rates  and 

1  Cj.  The  Australasian,  July  25,  1908,  p.  229;  also  September  25,  1909, 
p.  823. 

»  Tasmania,  9  Edw.  VII,  No.  7. 

•  The  First  Annual  Report  of  the  Commissioner  of  the  Land  Tax  of  the 
Commonwealth  of  Australia  (1912),  p.  6. 

*  Ibid. 

5  The  Land  Tax  Act  of  1878,  repealed  the  following  year,  was  a  charge 
of  ^d.  in  the  pound  of  the  capital  value  of  the  land,  deducting  the  value 
of  all  improvements.  An  exemption  of  £500  was  allowed.  Cf.  New 
Zealand,  Pari.  Debates  (1878),  vol.  xxix,  pp.  414-15.  The  Acts  that  gov- 
ern the  tax  on  umimproved  value  in  this  colony  are  The  Land  and  Income 
Assessment  Act,  1891,  amended  in  1893,  1900,  1903.  1907,  and  1912.  Cf. 
also  The  Valuation  of  Land  Amendment  Act,  1908,  amended  in  1912.  For 
the  rate  of  tax  cf.  the  annual  Land-tax  and  Income-tax  Acts. 


LAND  TAXES  IN  AUSTRALASIA  87 

assessment,  under  (a)  the  ordinary  rate,  (b)  the  graduated 
scale,  (c)  the  absentee  charge,  (d)  the  tax  on  mortgages, 
(e)  the  exemption  of  improvements. 

(a)  The  ordinary  rate  which  has  remained  unchanged 
is  Id.  in  the  pound  of  the  actual  value  of  the  land  minus 
the  value  of  the  improvements  and  minus  the  value  of  any 
mortgages  owing  on  the  land.  Land  whose  assessed  value 
does  not  exceed  £1500  is  allowed  an  exemption  of  £500;  if 
its  value  exceeds  £1500  but  is  less  than  £2500,  the  exemp- 
tion diminishes  by  £l  for  every  £2  of  the  surplus  value 
over  £1500,  so  that  when  the  assessed  value  reaches  £2500 
or  more  no  exemption  is  allowed.^  In  computing  the 
amount  of  exemption  the  value  of  the  mortgage  or  mort- 
gages is  not  subtracted  from  the  value  of  the  land.^  Thus, 
should  the  value  of  the  land  when  the  mortgage  is  included 
be  £2500  no  exemption  is  allowed.  The  only  other  exemp- 
tion '  from  the  ordinary  tax  provided  for  is  that  in  case  of 
an  owner  incapacitated  by  age  or  ill  health  from  earning 
an  income  (except  from  the  land)  exceeding  £200  per  an- 
num. In  such  a  case  the  exemption  may  be  any  sum  not 
exceeding  £2000,^  —  or  where  the  taxpayer  is  a  widow 
with  dependent  children,  not  exceeding  £3500,^  —  at  the 
discretion  of  the  Commissioner  of  Taxes  when  he  is  satis- 
fied that  the  payment  of  the  tax  in  full  would  entail  hard- 
ship on  such  owner. 

(b)  In  addition  to  the  ordinary  tax,  a  graduated  tax 
is  charged  on  all  land  whose  value  is  £5000  or  above. 
The  graduated  scale  has  undergone  many  revisions  for  the 
purpose  of  raising  the  rate  on  the  larger  estates.  The 
scale  began  with  a  rate  of  ^d.  in  the  pound  on  land  valued 

1  New  Zealand,  56  Vic,  No.  18,  Schedule  A,  Arts.  1,  2, 

2  Ibid.,  Art.  2. 

*  Barring  the  usual  exemptions  of  land  owned  by  the  government  and 
used  for  special  purposes,  e.g.,  educational,  charitable,  etc. 

*  New  Zealand,  55  Vic,  No.  18.  §  2. 

'  Amended  provision  in  Land  and  Income  Assessment  Amendment  Ad, 
1912  (New  Zealand,  3  Geo.  V,  No.  10),  §  86. 


857S2 


88 


THE  TAXATION  OF  LAND  VALUE 


at  £5000,  rising  to  l^d.  on  a  value  of  £210,000,  or  above, 
the  increment  being  ^d.  for  every  £10,000.^  Already, 
in  1893,2  ij^Q  scale  was  slightly  modified  so  that  on  land  of 
£210,000,  or  above,  the  rate  was  increased  from  l%d.  to 
2d.  A  more  drastic  amendment  was  passed  in  1903,^  when 
the  rate  on  all  land  of  more  than  £7000  unimproved  value 
was  raised,  and  the  scale  graded  to  yield  3d.  instead  of  2d. 
on  the  largest  estates.  In  1907,*  the  year  when  the  screw 
was  put  on  with  vigor,  the  progressive  tax  took  the  follow- 
ing form:  — 

RATE  OF  GRADUATED  TAX  ON  THE  UNIMPROVED 
VALUE  OF  LAND,  £50000  TO  £40,000 

Where  the  value  is    £5,000  and  less  than   £7,000,  yVd.  in  the  pound 


•       7,000 

" 

9,000,  j\d. 

'       9,000 

<t 

11,000,  ^^d. 

•     11,000 

« 

13,000,  j\d. 

•     13,000 

<i 

15,000,  j%d. 

♦     15,000 

« 

17,500,  ^^. 

•     17,500 

« 

20,000,  f^d. 

•     20,000 

« 

22,500,  j%d. 

•     22,500 

«t 

25,000,  Ad. 

•     25,000 

« 

27,000,  Hd. 

♦     27,500 

<i 

30,000,  \ld. 

'     80,000 

It 

35.000,  \id. 

•     35.000 

<• 

40,000,  xfd. 

At  the  value  of  £40,000  the  rate  becomes  two-fifths 
of  one  per  cent,  and  for  every  additional  £1000  of  value 
the  rate  is  increased  by  one-hundredth  of  one  per  cent.  The 
rate  reaches  its  maximum  at  £200,000,  when  it  becomes 
two  per  cent  for  that  and  any  higher  value.^  Further- 
more, this  Act  stipulated  that  after  March,  1910,  an  addi- 
tion of  twenty-five  per  cent  to  the  above  rate  would  be 
charged '  in  case  of  all  estates  over  £40,000.   It  is  significant 

*  New  Zealand,  55  Vic,  No.  18,  Schedule  B.  This  is  only  approxi- 
mately correct,  the  increment  being  |d.  between  £5000  and  £10,000, 
yi.  between  £90,000  and  £110,000,  etc. 

*  Papers  Bearing  on  Land  Taxes,  etc,  (Cd.  4750),  1909,  p.  134. 
'  «  Ibid. 

*  New  Zealand,  7  Edw.  VII,  No.  18,  Schedule. 

*  Ibid.,  §§  4.  5,  6.  «  Ibid.,  §  7. 


LAND  TAXES  IN  AUSTRALASIA  89 

that  this  additional  charge  was  not  to  apply  to  "business 
premises,"  which  were  defined  as  "any  piece  of  land  in- 
cluded within  the  area  of  a  building  used  for  business  pur- 
poses, together  with  such  additional  land  as  immediately 
adjoins  the  said  building,  and  is  used  and  occupied  in  con- 
nection therewith,  and  does  not  exceed  in  extent  the  area 
of  the  building  itself."  ^ 

In  the  Act  of  1912  the  graduated  rates  are  as  follows:  ' 

(a)  From  £5000  to  £15,000,  ^d.  in  the  pound,  in- 
creased by  ^r,^j5nd.  for  each  pound  of  the  excess 
value  over  £5000. 

(6)  From  £15,000  to  £30,000,  W.  increased  by 
^■cixsrsd.  for  every  pound  of  excess  value  over 
£15,000. 

(c)  From  £30,000  to  £200,000,  W.  increased  by 
Tirshu-ud.  for  every  pound  of  excess  value  over 
£30,000. 

(d)  Over  £200,000,  5^d.  for  every  pound  of  unim- 
proved value. 

The  maximum  rate,  it  will  be  noted,  is  now  about  two 
and  one-half  per  cent  as  compared  with  two  per  cent  in 
the  Act  of  1907.  Another  change  is  that  the  twenty-five 
per  cent  additional  charge  on  other  than  business  premises 
now  falls  on  estates  of  £30,000  and  above,  instead  of  be- 
ginning with  £40,000.3 

(c)  The  purpose  of  the  land  tax  is  further  shown  by  the 
special  rate  on  absentee  holdings  and  by  the  amendments 
of  that  provision.  According  to  the  original  Act  three  or 
more  years'  absence  from  the  colony  constituted  absen- 
teeism. Now,  an  absentee  is  one  who  has  been  away  from 

*  Where  the  person  is  owner  of  both  business  premises  and  other  land, 
he  pays  the  graduated  tax,  without  the  twenty-five  per  cent  increase,  on 
all  the  land.  To  that  tax  is  then  added  the  additional  charge  (twenty- 
five  per  cent)  "  on  the  amount  of  graduated  land  tax  that  would  be  pay- 
able if  he  were  not  the  owner  of  the  business  premises."  Ibid.,  §  7,  (5). 

«  New  Zealand,  3  Geo.  V,  No.  11,  §  2.  »  Ibid.,  No.  10,  §  44. 


40  THE  TAXATION  OF  LAND  VALUE 

the  colony  for  at  least  two  years.  More  specifically,  to  be 
exempt  from  the  absentee  tax  one  must  have  resided  in 
New  Zealand  at  least  one-half  of  the  period  of  four  years 
immediately  preceding  the  assessment,  or,  if  the  land  has 
been  acquired  within  this  four  years,  at  least  one-half  of 
the  period  between  his  acquisition  of  the  land  and  the  time 
of  assessment.  Listead  of  the  original  super-charge  of 
twenty  per  cent,  the  rate  of  the  absentee  tax  is  now  fifty 
per  cent  of  the  graduated  scale;  so  that,  for  example,  if  the 
graduated  rate  for  a  certain  value  be  4(i.  in  the  pound,  an 
absentee  owner  of  that  value  will  be  charged  6d.  in  the 
pound.^  V  .-. 

(d)  In  computing  the  assessment  for  the  ordinary  tax 
the  value  of  any  mortgage  or  mortgages  is  deducted  from 
the  taxable  value  of  the  land,  but  the  value  of  mortgages  is 
included  in  the  assessment  for  purposes  of  the  graduated 
tax.  That  does  not  mean  that  mortgaged  land  escapes 
taxation,  for  the  mortgage  is  held  liable  for  a  separate 
mortgage  tax  of  id,  in  the  pound  of  the  value  of  such  mort- 
gage. Compared  with  the  ordinary  tax  the  mortgage  has  the 
advantage  of  jd.  in  the  pomid.^  For  all  other  purposes  the 
value  of  the  mortgage  is  not  deducted  in  computing  the  tax. 

(e)  It  is  interesting  to  note  that  in  the  original  Act,  for 
purposes  of  the  ordinary  tax,  improvements  were  exempted 
only  to  the  amount  of  £3000.^  Since  1893,  however,  all 
improvements  go  imtaxed.  For  purposes  of  the  graduated 
tax  the  unimproved  value  only  was  from  the  first  taxable. 
What  is  included  under  improvements  will  be  more  ex- 
plicitly pointed  out  in  the  sections  on  valuation.*  But  it  is 
of  interest  to  note  here  the  attempt  not  to  tax  value  accru- 

1  New  Zealand,  7  Edw.  VII,  No.  18,  §  8.  If  an  absentee  taxpayer  be 
liable  for  the  graduated  tax  jointly  with  a  non-absentee,  the  land  is 
assessed  jointly  as  if  the  one  were  not  an  absentee,  and  then  the  absentee 
tax  is  computed  to  apply  to  the  absentee.  Moreover,  while  a  corporation 
is  not  considered  an  absentee,  the  shareholder  may  be  so  considered. 

«  New  Zealand,  55  Vic,  No.  18,  Schedule  B. 

•  Ibid.,  Schedule  A.  *  See  infra,  chapter  in,  §§  3,  4. 


LAND  TAXES  IN  AUSTRALASIA'  [41 

ing  from  the  employment  of  labor  and  capital,  as  shown  in 
the  provision  of  1907  ^  exempting  minerals,  timber,  and 
flax  which  are  being  worked  or  used  in  good  faith. 

§  9.  The  general  character  of  the  Australian  land  taxes 
for  state  purposes  ^  is  both  like  and  unlike  the  system  in 
New  Zealand.  While  there  is  a  general  similarity  in  pur- 
pose and  in  definition,  we  note  in  the  Australian  Acts  no 
such  persistent  efforts  to  penalize  the  large  landowners 
suflficiently  to  bring  about  disintegration.  This  is  made 
evident  by  the  fact  that  the  only  Australian  state  which 
has  a  graduated  tax  is  Tasmania,  where  the  progressive 
scale  begins  with  Id.  in  the  pound  for  land  under  £2500, 
rising  to  2^d.  on  estates  of  £80,000  or  above.'  And  yet, 
compared  to  the  New  Zealand  scale,  and  considering  that 
no  ordinary  or  absentee  tax  is  levied  in  Tasmania,  the  Tas- 
manian  land  tax  is  considerably  less  burdensome  than  the 
New  Zealand  tax.  As  for  the  taxes  in  the  other  states,  the 
rate  of  tax  in  South  Australia  is  ^d.  in  the  pound  on  land 
valued  at  £5000  or  less.  Id.  on  land  of  a  greater  value  than 
£5000;*  in  Victoria  it  is  a  flat  rate  of  ^d.  in  the  pound;* 
and  in  Western  Australia  ^  it  is  ^d.  and  Id.  in  the  pound, 
respectively,  according  as  the  land  is  improved  or  imim- 
proved.    Then,  too,  only  South  Australia  and  Western 

*  The  income  derived  from  minerals,  timber,  and  flax  is,  however, 
taxable  umder  the  income  tax.  And  "if  the  Commissioner  is  of  the  opin- 
ion that  any  land  containing  minerals  or  having  standing  timber  or  flax 
thereon  is  not  being  worked  or  used  in  good  faith  and  to  an  adequate 
extent  for  the  purpose  of  extracting  the  said  minerals,  or  of  cutting  the 
said  timber  or  flax,  such  minerals,  timber,  or  flax  shall  be  excluded  from 
the  provisions  of  this  section  (i.e.,  exemption)  and  land  tax,  both  ordi- 
nary and  graduated,  shall  be  assessed  and  paid."  New  Zealand,  7  Edw. 
VII,  No.  18,  §  22. 

*  Inasmuch  as  the  tax  for  state  purposes  has  been  suspended  in  favor 
of  the  local  authorities,  the  consideration  of  the  land  taxation  in  New 
South  Wales  will  be  reserved  for  the  following  sections  dealing  with  the 
local  rating  systems. 

»  Tasmania,  1  Geo.  V,  No.  37,  §  2. 

*  South  Australia,  4  Edw.  VII,  No.  861;  5  Edw.  VII,  No.  894. 
»  Victoria,  2  Geo.  V,  No.  2327;  3  Geo.  V,  No.  2405,  Schedules. 
•^Western  Australia,  7  Edw.  VII,  No.  15.  §§  9,  10. 


42  THE  TAXATION  OF  LAND  VALUE 

Australia  have  additional  charges  on  absentee  holdings; 
twenty  per  cent  on  the  total  tax  in  the  former,  ^d.  in  the 
pound  additional  in  the  latter  state.  In  both  states  ab- 
sence from  the  Commonwealth  for  one  year  previous  to 
the  assessment  constitutes  absenteeism.* 

It  is  significant  that  the  amount  of  exemption  from  the 
tax  in  case  of  small  holdings  is  less  in  the  Australian  states 
than  in  New  Zealand.  Thus  no  such  exemption  is  allowed 
in  either  South  Australia  '^  or  in  Tasmania;  in  Western 
Australia  land  valued  at  £50  or  less  is  exempt;  while  in 
Victoria  land  whose  value  does  not  exceed  £250  is  not  tax- 
able, and  the  exemption,  in  case  the  value  of  the  land  ex- 
ceeds £250,  diminishes  at  the  rate  of  £1  on  every  £1  of 
such  excess,  leaving  no  exemption  when  the  unimproved 
assessed  value  amounts  to  or  exceeds  £500.'  Thus,  when 
the  value  of  the  land  is  £275,  the  exemption  is  £225,  when 
the  value  is  £450,  the  exemption  is  £50,  etc. 

The  following  special  exemptions  should  be  noted.  In 
Western  Australia,  a  special  exemption  is  accorded  the 
owner  of  improved  land  used  for  agricultural  or  like  pur- 
poses. In  such  a  case  a  deduction  of  £250  from  the  as- 
sessed unimproved  value  of  the  land  is  made.  This  deduc- 
tion is  made  only  once  in  case  of  an  owner  of  several 
estates.*  Exempt  are  also  in  Western  Australia  condi- 
tional purchasers,  for  five  years  from  the  date  of  con- 
tract or  date  of  survey,  whichever  is  later.  It  is  noteworthy, 
however,  that  this  exemption  does  not  apply  to  holders  of 
more  than  1000  acres  of  arable  land,  or  more  than  2500 

*  In  South  Australia  absence  from  the  state  as  well  as  from  the  Com- 
monwealth suflSces  to  constitute  absenteeism.  Cf,  South  Australia,  8 
Edw.  VII,  No.  804,  §  3;  4  Edw.  VII,  No.  861,  §  7.  Cf.  Western  Australia, 
7  Edw.  VII,  No.  15,  §  9. 

«  South  Australia,  47  and  48  Vic,  No.  823,  §§  8, 11.  The  payment  of 
the  land  tax  exempts  the  owner  from  the  tax  on  income  accruing  from  the 
land,  except  "so  far  as  such  income  shall  actually  exceed  £5  per  centum 
per  annum  on  the  unimproved  value  of  the  land."  Ibid.,  §  12. 

»  Victoria,  1  Geo.  V,  No.  2284,  §§  6,  7. 

«  Western  Australia,  7  Edw.  VII,  No.  15,  §  11  (3). 


LAND  TAXES  IN  AUSTRALASIA  4S 

acres  of  grazing  land,  or  cultivable  and  grazing  land  to- 
gether.^ In  Victoria,  at  the  discretion  of  the  Commissioner 
of  Taxes,  a  release  from  the  tax  wholly  or  in  part  may  be 
granted  in  case  of  serious  hardship  resulting  from  losses 
by  bush  fires,  drought,  floods,  or  similar  calamities.' 

Other  provisions  to  be  noted  are:  (1)  No  deductions  are 
allowed  in  case  of  land  subject  to  a  mortgage.'  (2)  In  case 
of  leaseholds,  the  owner  is  held  liable  for  the  tax.  For 
example,  the  South  Australian  Act  provides  that  no  con- 
tract or  covenant  should  bind  any  person  to  pay  the  land 
tax  to  the  exoneration  of  any  other  person.^  In  Victoria, 
the  Commissioner  is  empowered  to  determine  the  amount 
of  tax  payable  by  the  owner  and  lessee,  respectively,  if  in 
the  opinion  of  the  Commissioner  the  interest  in  the  land  of 
the  legal  owner  is  lessened  by  the  covenants  of  the  lease.^ 
(3)  Life  tenants  and  lessees  of  the  Crown  are  deemed 
owners  of  the  fee-simple,  and  are  therefore  subject  to  the 
tax.  In  such  cases  in  computing  the  amount  of  tax  account 
is  taken  of  the  lessee's  interest  in  the  land.  The  determina- 
tion of  this  interest,  however,  is  often  diflScult  and  some- 
times the  method  of  computation  is  stipulated  in  the  Act. 
Thus,  in  Western  Australia,*  the  unimproved  value  of 
Crown  leases,  where  the  right  of  purchase  is  not  given,  is 
fixed  at  the  difference  in  value  between  the  capitalized 
rental  under  the  lease  and  the  capitalized  rental  if  let 
"under  such  reasonable  conditions  as  a  bona  fide  lessee 
would  require,  assuming  the  actual  improvements  (if  any) 

1  Western  Australia,  7  Edw.  VH,  No.  15,  §  11. 

»  Victoria,  1  Geo.  V,  No.  2284,  §  89. 

'  In  Victoria  there  is  an  exception  to  this  provision  in  case  of  land 
subject  to  a  mortgage  existing  on  September  80,  1910.  If  in  that  case 
the  land  does  not  exceed  £3000,  an  annual  deduction  from  the  land  tax 
is  granted  equal  to  one-fortieth  part  of  the  interest  derived  from  that 
proportion  of  the  value  of  the  mortgage  as  the  unimproved  value  of  the 
land  bears  to  its  capital  value  (including  improvements).  Ibid.,  §  50. 

*  South  Australia,  67  and  58  Vic,  No.  604,  §  18. 
6  Victoria,  1  Geo.  V,  No.  2284,  §  39. 

•  Western  Australia,  7  Edw.  VII.  No.  15,  §  2  (c).  , 


44  THE  TAXATION  OF  LAND  VALUE 

had  not  been  made  "  (the  interest  rate  assumed  to  be  five 
per  cent).  (4)  The  attempt  to  penaUze  the  owner  of  mi- 
improved  land  is  clearly  shown  in  the  Act  of  Western  Aus- 
tralia which  allows  a  rebate  of  one-half  the  tax  to  the  owner 
of  improved  land.^  This  provision  necessitates  a  definition 
of  improved  land  which  under  that  Act  is  as  follows:  (a) 
agricultural  land  to  be  considered  improved  must  have 
improvements  upon  it  equal  to  the  value  of  one  pound  to 
every  acre  of  the  land  or  equal  to  one-third  of  the  unim- 
proved value  of  the  land;  (6)  urban  land  to  be  deemed 
improved  must  have  improvements  on  it  equal  to  an 
amount  not  less  than  one-third  the  unimproved  value  of 
the  land  or  equal  to  £50  per  foot,  etc. 

§  10.  In  addition  to  this  outline  of  the  chief  provisions 
of  the  land-tax  Acts  in  Austraha,  a  brief  account  of  the  his- 
torical development  of  the  systems  will  be  profitable.  It 
must  not  be  assumed  from  the  account  in  the  preceding 
section  that  the  great  uniformity  of  levy  shown  above  al- 
ways existed  in  the  land-tax  laws  of  the  different  states. 
The  laws  have  undergone  great  modification,  especially 
those  of  Victoria  and  Tasmania.  Victoria  was  the  first 
of  the  colonies  to  enact  a  land-tax  law;  this  was  in  1877.^ 
But  although  its  purpose  was  clearly  the  disintegration  of 
the  large  land  holdings,  the  tax  was  not  on  the  unimproved 
value.'  This  is  made  evident  from  the  provision  that 
owners  of  one  or  more  landed  estates  —  an  estate  being  a 
parcel  of  land  of  more  than  640  acres  valued  at  more  than 
£2500  —  pay  a  tax  at  the  rate  of  £1,  5s.  for  every  £100  of 
the  capital  value  of  such  estate  over  and  above  the  sum  of 
£2500.^  It  is  significant  that  to  be  taxable  the  land  had  to 

1  Western  Australia,  7  Edw.  VII,  No.  15,  §  10. 

*  Cf.  Victoria,  54  Vic,  No.  1107  (Revised  Statutes). 

'  The  reason,  however,  cannot  be  said  to  have  been  ignorance  of  the 
principle  of  the  taxation  of  unimproved  value  for,  as  we  mentioned  above, 
a  tax  on  the  unimproved  value  had  been  proposed  in  the  Parliament  of 
Victoria  as  early  as  1875.  See  supra,  p.  24,  and  footnote. 

*  Victoria,  54  Vic.  No.  1107,  §§  3,  4. 


LAND  TAXES  IN  AUSTRALASIA  45 

extend  more  than  one  square  mile  and  to  have  a  value 
above  £2500.  That  made  practically  all  urban  land,  as  well 
as  all  land  of  the  poorer  holders,  exempt  from  the  land  tax. 

That  the  tax  did  not  fall  on  the  unimproved  value  of  the 
land  was  due  to  the  peculiar  and  crude  system  of  valua- 
tion provided  for  in  the  Act.  The  land  was  classified  into 
four  categories  according  to  its  grazing  capacity.  Thus 
land  capable  of  carrying  two  or  more  sheep  to  the  acre  was 
returned  as  first  class,  valued  at  £4  to  the  acre;  land  cap- 
able of  carrying  three  sheep  to  two  acres  and  less  than  two 
sheep  to  the  acre  was  valued  at  £3  to  the  acre;  land  cap- 
able of  carrying  one  sheep  to  the  acre  and  less  than  three 
sheep  to  two  acres  was  third  class  and  valued  at  £2;  and 
land  not  capable  of  carrying  one  sheep  to  the  acre  was 
valued  at  £1  per  acre.^  It  was  held  that  such  a  system 
worked  in  the  interest  of  the  speculative  holder  who  al- 
lowed his  land  to  remain  fallow,  and  that  it  acted  as  a  dis- 
couragement to  the  grazing  industry  because  it  penalized 
the  more  industrious  graziers.^  In  spite  of  its  ineffective- 
ness this  1|  per  cent  tax  on  estates  over  640  acres  whose 
value  exceeded  £2500  remained  in  force  for  about  a  quar- 
ter of  a  century,  until  the  enactment  of  the  Land  Tax 
Act,  1910,'  which  is  modeled  after  the  existing  systems  of 
taxation  on  the  unimproved  value. 

The  land  tax  in  Tasmania  shows  even  more  clearly  a 
development  from  (1)  a  part  of  the  general  property  lev- 
ied on  the  annual  value,  to  (2)  a  realty  tax  levied  on  capi- 
tal value,  to  (3)  a  tax  on  the  imimproved  value  of  the  land 
itself.  The  earliest  charge  on  land  was  imposed  in  1880 
under  the  "Real  and  Personal  Estate  Duties  Act."  *  The 

1  Victoria,  54  Vic,  No.  1107,  §  15. 

'  "  The  land  tax  meant  to  hit  the  larger  holders  of  property,  and  it  has 
hit  twice  as  hard  the  men  of  moderate  means."  The  tax  fell  on  industry. 
CJ.  The  Australasian,  April  2,  1881,  p.  432. 

»  Victoria,  1  Geo.  V,  No.  2284. 

*  CJ.  First  Annual  Report  of  the  Commissioner  of  the  Land  Tax  of  the 
Commonwealth  of  Australia  (1912),  p.  6. 


46  THE  TAXATION  OF  LAND  VALUE 

rate  of  tax  was  9d.  in  the  pound  on  the  annual  value  (rental) 
of  all  lands.  Occupiers  other  than  owners  were  made  liable 
for  the  payment  of  the  tax  with  power  to  recover  from  the 
owners.  The  value  of  mortgages  was  not  exempt,  but  the 
mortgagors  were  empowered  to  recover  from  the  mort- 
gagees 9d.  in  the  pound,  calculated  on  the  annual  amount 
of  interest  paid.  Persons  in  possession  of  Crown  land  under 
contract  of  purchase  were  liable  according  to  the  amount 
of  purchase  money  actually  paid  by  them.^  In  1882  the 
rate  of  tax  was  reduced  to  6d.  in  the  pound,  but 
was  increased  to  9d.  again  in  1885. 

In  1888  2  the  basis  of  levy  was  changed  from  the  annual 
to  the  capital  value  of  landed  property  including  improve- 
ments, the  rate  being  ^d,  for  every  pound  of  value.  This 
Act  underwent  much  revision  in  its  minor  provisions;  but 
in  1905  the  proportional  tax  was  replaced  by  a  graduated 
tax  levied  on  the  capital  value  of  real  property.^ 

In  1909  a  super-charge,  an  additional  levy  of  one-fourth 
part  of  the  tax  collectible  under  the  previous  Act,  was 
imposed.* 

The  change  to  the  taxation  on  unimproved  value  took 
place  in  1910.  In  the  accompanying  table  is  set  forth  a 
comparison  of  the  graduated  scales  of  rates  charged  under 
the  Acts  of  1905  and  1910,  respectively. 

It  must  be  borne  in  mind  in  examining  the  table  that, 
in  1905,  the  rate  was  on  both  land  and  improvements;  in 
1910,  on  the  unimproved  value.  It  will  be  noted  that  the 
rate  is  now  more  than  double  the  rate  under  the  Act  of 
1905,  and  that  this  increase  falls  most  heavily  on  vacant 
land,  without  at  the  same  time  alleviating  the  burden 
on  the  improved  land. 

*  Cf.  First  Annual  Report  of  the  Commissioner  of  the  Land  Tax  of  the 
Commonwealth  of  Australia  (1912),  p.  6. 

*  The  Land  Tax  Act  (1888),  Tasmania,  52  Vic,  No.  SI. 

»  Cf  Tasmania,  59  Vic.  No.  21,  §  3;  5  Edw.  VII,  No.  4,  §§  8.  21. 

*  Tasmania,  9  Edw.  VII,  No.  10  {The  Land  Tax  Super-Charge  Act, 
1909). 


LAND  TAXES  IN  AUSTRALASIA 


47 


TABLE  SHOWING  THE  RATES  OF  TAX  IN  TASMANIA 
UNDER  THE  ACTS  OF  1905  AND   1910  ^ 


Rates  oj 

'  taxation 

Capital  value 

Land  and  improve- 

Unimproved value 

ments,  1906 

1910 

under    £2,500 

id.  in  the  pound 

Id.  in  the  pound 

£2,500  and      "          5,000 

hd. 

lid.  "    " 

" 

5,000    "        "        15,000 

l^d.  "    " 

i< 

15,000    "        "        30,000 

Id.  "    "       " 

l|d.  "    " 

< 

80,000    "        "        40,000 

Id."    "       " 

2d.  «    " 

< 

40,000    "        "        60,000 

id."    "       " 

2d.  "    " 

< 

50,000    "        "        80,000 

id.  "    "       " 

2id.  "    " 

< 

80,000    "    above 

Id.  "    "       " 

ihd.  "    "    ■   « 

Turning  from  the  Tasmanian  system  to  that  in  South 
AustraHa,  it  is  noteworthy  that  the  land  tax  was  from  the 
first  levied  here  on  the  basis  of  the  unimproved  value.  The 
Act  of  1884  imposed  a  tax  of  ^d.  in  the  pound  on  the  value 
of  the  land.^  An  additional  tax  on  estates  exceeding  £5000 
and  an  absentee  charge  were  levied  in  1894.'  Slight 
changes  in  rate  were  made  from  time  to  time  fluctuating 
from  ^d.  to  jd.  in  the  pound  plus  the  super-charge  and 
absentee  rate.  The  details  of  the  rates  have  been  epito- 
mized as  follows:  * 

1885-1894   §d.  in  the  pound  on  the  unimproved  value. 

1895-1902  * |d.  in  the  p>ound  on  the  unimproved  value,  plus  a  fur- 
ther id.  in  the  pound  on  land  over  £5000,  plus 
absentee  tax,  20  per  cent  extra. 

1903  ' |d.  in  the  pound,  plus  a  further  id.  additional  above 

£5000;  absentee  tax  as  fonnerly. 

1904  ' id.  in  the  poimd,  plus  ^d.  extra  above  £5000,  with 

absentee  tax  as  formerly. 

1  Tasmania,  5  Edw.  VII,  No.  4,  §  8;  1  Geo.  V,  No.  37,  §  2. 
«  South  Australia,  47  and  48  Vic,  No.  323,  §§  8,  11. 
»  IMd.,  57  and  58  Vic,  No.  604. 

*  Papers  Bearing  on  Land  Taxes,  etc  (Cd.  4750),  1909,  p.  130. 
«  South  Australia,  2  Edw.  VII,  No.  804. 

•  Ibid.,  3  Edw.  VIL  No.  838.  »  Ibid.,  4  Edw.  VII,  No.  861. 


48  THE  TAXATION  OF  LAND  VALUE 

1905  * f  d.  in  the  pound,  plus  f  d.  extra  above  £6000,  with  the 

absentee  tax,  20  per  cent  of  total  tax. 
1906-1912  ' id.  in  the  pound,  plus  ^d.  extra  above  £5000,  absen- 
tee tax  20  per  cent  of  total. 

Another  revision  made  in  the  South  AustraHan  law  was 
with  regard  to  the  definition  of  absenteeism.  Under  the 
Act  of  1894  an  absentee  was  any  one  who  had  been  absent 
for  at  least  two  years  immediately  prior  to  the  levy  of  the 
tax.*  It  was  stipulated  that  when  at  least  three-fifths  of  the 
interest  in  a  company  which  owns  land,  or  when  at  least 
three-fifths  of  the  interest  in  any  land  is  held  by  absentees 
the  land  should  be  considered  as  owned  by  absentees;  but 
any  non-absentee  shareholder  should  be  entitled  to  a  re- 
fund of  the  amount  overpaid  by  him.  The  Act  of  1902 
and  the  subsequent  Acts  have  revised  this  section,  substi- 
tuting for  the  period  of  two  years,  one  of  twelve  months. 

The  last  state  in  Australia  to  introduce  direct  taxation 
and  the  tax  on  unimproved  value  of  land  was  Western 
Australia  (1907).*  The  chief  provisions  of  the  Act  modeled 
on  the  other  laws  have  already  been  reviewed.^ 

§  11.  The  systems  of  local  rating  on  unimproved  value 
in  Australia  and  New  Zealand  lack  the  discriminatory 
features  of  the  state  levies  and  reveal  their  purely  fiscal 
character.  The  following,  from  a  report  on  the  "Unim- 
proved Land  Value  Taxation  in  Queensland,"  ®  con- 
tains what  may  be  termed  the  inception  and  evolution 
of  the  idea  of  exempting  improvements  from  taxation  as  it 

1  South  Australia,  5  Edw.  VII,  No.  894. 

2  Ibid.,  1  Geo.  V,  No.  1007. 

*  "Except  in  the  case  of  life  assurance  societies  doing  business  in 
South  Australia  on  the  mutual  principle,  or  in  cases  in  which  the  whole 
of  the  income  from  the  land  is  paid  to  or  for  public  or  charitable  purposes 
in  the  colony."  Cf.  South  Australia,  57  and  58  Vic,  No.  604,  §  3. 

*  Western  Australia,  7  Edw.  VII,  No.  15  {Land  Tax  and  Income  Tax 
Assessment  Act,  1907). 

^  See  supra,  §  9. 

"  Papers  Relative  to  the  Working  of  Taxation  on  the  Unimproved  Value 
of  Land  in  Queensland  (Cd.  3890),  1908,  p.  20.  Mr.  Corrie,  the  author  of 
the  report,  was  President  of  the  Queensland  Institute  of  Architects  and 
was  for  twenty-one  years  architect  and  valuer  in  Brisbane. 


LAND  TAXES  IN  AUSTRALASIA  49 

presented  itself  in  the  legislature  in  Queensland.  It  is  a 
system  "educed,  as  the  gradual  development  of  legislation 
proves,  more  or  less  subconsciously  from  the  germ  of  the 
idea  .  .  .  that  a  premium  should  be  held  out,  or  at  worst, 
no  discouragement  offered,  to  the  improvement  of  the 
imexploited  lands  of  a  new  country.  It  is  a  system  ...  in- 
tended to  provide  for  some  reasonable  advantage  accru- 
ing to  the  land  taxed."  The  conception,  however,  lay  dor- 
mant until  1890,^  when,  for  the  purpose  of  meeting  an 
emergency  measure  to  reUeve  the  consolidated  revenue  of 
the  state  government,  the  local  authorities  were  empow- 
ered to  levy  rates  on  unimproved  value. 

The  most  significant  characteristic  of  the  Queensland 
system  is  that  practically  all  the  local  revenue  is  raised 
from  this  source.  All  rates,  general,  special,  and  separate,* 
are  levied  on  the  unimproved  value.  The  adoption  of  this 
system  of  rating  is  moreover  obligatory.  The  general 
rates  must  not  exceed  Sd.  in  the  pound;  nor  may  they  be 
less  than  id.  in  the  pound.  The  Act  provides,  furthermore, 
that  the  total  amount  of  special  rates  (excluding  all  sep- 
arate rates)  shall  not  exceed  3d.  in  the  pound.'  Certain 
special  rates,  for  example.  Special  Water  Rate,  Special 
Health  Rate,  Special  Cleansing  Rate,  Special  Loan  Rate, 
may  be  levied  on  the  basis  of  the  unimproved  value  of  the 
land,  or  upon  some  other  basis  so  that  the  burden  will  be 
distributed  according  to  the  benefit  rendered.*  The  mini- 
mum at  which  any  separate  portion  of  ratable  land  shall 

^  Mr.  Corrie  traces  the  beginning  of  the  exclusion  of  improvements 
from  taxation  to  the  "Divisional  Boards  Act  of  1879."  Cf.  Papers 
Relative  to  the  Working  of  Taxation,  etc.,  pp.  5jf. 

*  Special  rates  are  levied  to  defray  the  cost  of  local  improvements  and 
utilities  and  fall  on  all  the  land  of  the  community;  a  separate  rate  is  one 
levied  for  a  special  benefit  of  some  particular  part  of  the  locality  and  the 
tax  falls  on  that  section  alone.  A  special  rate  may  also  be  a  separate  rate, 
i.e.,  a  "special  assessment"  but  applicable  to  all  the  land.  Queensland, 
54  Vic,  No.  24;  1  Edw.  VII,  No.  27;  2  Edw.  VII,  No.  19. 

»  Queensland,  2  Edw.  VII,  No.  19,  §§  209-23.  Under  the  Act  of  1890 
(54  Vic,  No.  24,  §  29)  the  maximum  rate  was  id.  for  municipalities. 

*  Ibid..  §§  216-22. 


60  THE  TAXATION  OF  LAND  VALUE 

be  valued  is  £30  per  acre  in  case  of  town  and  £20  in  ease 
of  shire  land;  but  in  ease  the  same  person  is  the  owner  of 
two  or  more  parcels  of  unoccupied  land  adjoining  each 
other,  they  shall  be  valued  as  one  parcel.^ 

Unique  is  the  system  of  taxing  public  utilities  corpora- 
tions by  means  of  the  land  tax.  Private  companies  operat- 
ing tramways,  gas  mains,  electric  lines,  hydraulic  mains, 
are  taxed  on  the  land  or  public  roads  utilized  by  them; 
but  the  basis  of  taxation  is  not  the  value  of  the  land.  For 
example,  for  the  operation  of  tramways  a  tax  of  £l  10s. 
on  every  £100  of  the  gross  earnings  of  the  vehicles  of  the 
company  running  upon  the  lines  is  charged.  In  case  the 
lines  extend  over  into  another  area  the  tax  is  made  pro- 
portionate to  the  mileage  of  the  route  under  each  local 
authority.* 

In  considering  the  operation  of  this  single  tax  on  land 
for  local  purposes,  it  must  be  remembered  that  the  muni- 
cipalities in  Queensland  exercise  fewer  functions  of  govern- 
ment than  the  municipalities  of  our  country  for  example. 
Poor  relief,  orphanages,  education,  public  libraries,  police, 
criminal  prosecutions  and  prisons,  hospitals  and  asylums, 
death  registration  and  like  functions,  are  under  state  juris- 
diction, paid  for  out  of  the  consolidated  revenue  fund  of 
the  state  government.'  It  is  important  to  note,  on  the 
other  hand,  that  the  local  governments  of  Queensland  re- 
ceive but  a  trifling  "endowment"  from  the  state  govern- 
ment *  as  compared  with  the  local  governments  in  the 
other  Australian  states. 

§  12.  The  "Rating  on  Unimproved  Value  Act"  which 

1  Queensland,  2  Edw.  VII,  No.  19,  §  195  (6,  7). 

*  Ibid.,  §§196^.  It  is  interesting  to  read  the  following  proviso: 
"  The  earnings  from  the  running  of  special  vehicles  on  any  car  route  for 
the  conveniences  of  work-people  may,  at  the  discretion  of  the  Local 
Authority,  be  exempted  from  the  provisions  of  this  section,  if  the  rate 
charged  per  passenger  does  not  exceed  Id.  per  mile." 

*  Papers  Relative  to  the  Working  of  Taxation  on  the  Unimproved  Value 
of  Land  in  Queensland  (Cd.  3890),  1908,  p.  14. 

*  See  infra,  chapter  in,  §  9. 


LAND  TAXES  IN  AUSTRALASIA  51 

passed  the  General  Assembly  of  New  Zealand  ^  in  1896 
differed  from  the  Queensland  Act  chiefly  in  this  respect; 
it  extended  to  the  counties,  municipalities,  and  other  local 
authorities  the  option  of  rating  on  the  imimproved  value 
of  the  land,  thus  making  optional  what  the  Queensland 
Act  had  made  obligatory.  The  New  Zealand  measure 
provides  for  the  adoption  of  the  system  by  a  vote  of  the 
ratepayers.  The  signatures  of  at  least  fifteen  per  cent  *  of 
the  ratepayers  are  required  to  petition  for  a  vote,  and  a 
majority  of  all  the  votes  is  necessary  to  institute  the  new 
measure.'  A  rescinding  proposal  may  be  carried  or  rejected 
in  the  same  manner  of  voting  as  for  adopting  the  proposal. 
A  proposal  to  rescind  may  only  be  demanded,  however, 
after  the  new  rating  system  has  been  at  least  three  years 
in  operation.  Should  the  rescinding  proposal  be  carried, 
the  old  method  of  rating  is  again  put  into  effect.  After  the 
institution  of  one  system  a  rescinding  proposal  may  not  be 
submitted  until  three  years  have  elapsed,  nor  may  a  vote 
be  taken  whether  to  rescind  or  to  adopt  of  tener  than  once 
in  three  years.* 

How  have  the  local  authorities  in  New  Zealand  re- 
sponded to  this  privilege?  Until  1914,  138  local  authori- 
ties had  taken  a  poll  on  the  proposal  to  rate  on  unim- 
proved value.''  In  106  of  these  the  measure  was  carried  on 
the  first  poll.  In  8  boroughs  the  proposal  was  rejected  on 
the  first  vote,  but  was  ultimately  carried.    Besides  num- 

^  New  Zealand,  1896,  No.  5.  A  similar  bill  had  been  rejected  several 
years  before.  In  1893,  such  a  proposal  had  passed  the  house,  but  met 
defeat  in  the  Legislative  Council.  New  Zealand,  Pari.  Debates  (1896), 
vol.  xcii,  p.  631. 

*  The  percentage  varies  with  the  number  of  ratepayers  in  the  com- 
munity. It  is  twenty-five  per  cent  when  the  roll  of  names  does  not  ex- 
ceed 100;  twenty  per  cent  when  it  does  not  exceed  300.  New  Zealand, 
1896,  No.  5,  §  5. 

»  As  amended  in  Act  of  1900,  No.  18,  §  2. 

«  New  Zealand,  1896,  No.  5,  §§  10,  11. 

'  Statistics  of  the  Dominion  of  New  Zealand,  Printed  by  Authority 
(Wellington,  Mackay),  1911,  pp.  659-83;  Statistics  of  the  Dominion  of 
New  Zealand  (1913),  vol.  iv,  pp.  63-64. 


69  THE  TAXATION  OF  LAND  VALUE 

erous  smaller  local  bodies,  27  counties,  56  boroughs  and 
2  cities  now  rate  on  land  value.  ^  In  1913,  the  total  number 
of  counties  in  New  Zealand  was  124,  of  boroughs  115, 
showing  that  the  new  system  is  more  prevalent  in  the 
boroughs.  In  nine  cases  the  attempts  to  rescind  the  meas- 
ure were  rejected.  In  only  one  locality,  in  North-East 
Valley,  was  the  proposal  to  rescind  carried.*  The  two 
cities  now  rating  on  unimproved  value  are  the  largest  in 
New  Zealand,  Wellington  with  a  population  of  about 
sixty-five  thousand,  and  Christchurch  with  about  fifty- 
five  thousand. 

As  regards  the  rate  of  levy,  the  Act  merely  provides 
that,  where  prior  to  the  adoption  of  rating  on  unimproved 
value  a  hmit  of  rating-power  was  imposed  upon  the  local 
authority,  the  new  rate  should  be  such  as  to  yield  a  reve- 
nue equivalent  to  that  under  the  previous  system.  The 
Act  stipulates  that  the  rate  of  1*.  on  annual  (rental)  value 
shall  be  deemed  equivalent  to  id.  of  the  capital  value.' 
Until  1911  the  option  of  rating  on  unimproved  value  did 
not  apply  to  water  rates,  gas  rates,  electric  light  rates, 
sewage  rates,  or  hospital  and  charitable  rates.  Upon  the 
vote  of  the  ratepayers  these  rates  may  now  be  levied  on 
the  unimproved  value.* 

The  provisions  of  the  South  Australian  Act  ^  are  similar 
to  those  of  the  New  Zealand  Act.  The  adoption  of  rating 
on  the  basis  of  imimproved  value  is  made  optional  for  any 
municipality.  A  poll  on  the  question  may  be  taken  upon 
the  petition  of  at  least  one-half  the  number  of  ratepayers.' 
The  rescission  of  such  a  proposal,  after  the  system  has  been 

*  Statistics  of  the  Dominion  of  New  Zealand,  supra. 

*  New  Zealand,  Statistics  of  the  Dominion  (1913),  vol.  IV,  pp.  63-64. 
Cf,  also  Papers  Relative  to  the  Working  of  Taxation,  etc.  (Cd.  S19I),  1906, 
pp.  25  Jf.;  also  (Cd.  4750),  1909,  pp.  78,  135. 

'  As  amended  in  The  Rating  on  Unimproved  Value  Amendment  Act, 
1903,  No.  56.  §  2  (6);  New  Zealand,  1906,  No.  5,  §  15. 

*  New  Zealand,  1896,  No.  5,  §20;  also  1911  (2  Geo.  V),  No.  11, 
5  2. 

8  South  Australia,  56  and  57  Vic,  No.  673.  »  Ibid.,  §  11.    I 


LAND-TAXES  IN  AUSTRALASIA  BS 

adopted  and  in  operation  two  or  more  years,  is  made  pos- 
sible upon  a  vote  of  at  least  one-half  the  number  of  rate- 
payers.^ 

§  13.  The  other  Australian  state  whose  experience  with 
rating  on  land  value  offers  interesting  study  is  New 
South  Wales.  As  pointed  out  before,^  a  land  tax  for  state 
purposes  had  been  in  force  in  New  South  Wales  since  1895. 
The  movement  to  extend  the  taxing  powers  of  the  local 
authorities  was  the  outgrowth  of  the  larger  scheme  of  local 
government.  The  chief  purpose  of  the  "Local  Govern- 
ment (Shires)  Act  of  1905 "  '  and  of  the  "  Local  Govern- 
ment Extension  Act  of  1906  "  *  was  the  organization  of 
the  shires  and  municipalities  in  order  to  relieve  the  state 
government  from  some  of  its  functions.  As  the  finances 
of  the  state  government  were  in  a  prosperous  condition 
and  there  was  a  surplus  on  hand,^  the  suspension  of  the 
state  land  tax  in  favor  of  the  newly  created  shires  and 
municipalities  was  no  hardship  to  the  state  government. 
Accordingly,  the  above-mentioned  Acts  provided  for  the 
rating  on  imimproved  value  by  the  local  authorities  and 
for  the  suspension  of  the  land  tax  for  state  purposes  as 
soon  as  the  shire  or  municipaUty  had  levied  the  first  gen- 
eral rate  under  the  new  law.^ 

The  system  of  local  rating  in  New  South  Wales,  it  is 
noteworthy,  is  intermediate  between  those  in  Queensland 
and  New  Zealand.  In  respect  to  general  rates  the  tax  is 
obUgatory  as  in  Queensland;  in  respect  to  special  and  other 

»  South  Australia,  66  and  57  Vic,  No.  573,  §§  30,  31. 

*  See  supra,  p.  41  footnote;  New  South  Wales,  59  Vic,  No.  15.  The 
Land  and  Income  Tax  Assessment  Act  of  1895  provided  for  a  tax  of  Id.  in 
the  pound  of  the  unimproved  value.  An  exemption  of  £240  (which  in 
the  case  of  an  owner  of  more  estates  than  one  was  made  only  once)  was 
allowed. 

»  New  South  Wales,  Act  No.  33,  1905.  «  Ibid.  40,  1906. 

'  The  Australasian,  August  5,  1905,  p.  325;  September  15,  1906, 
p.  629. 

•  C/.  New  South  Wales,  Act  33,  1905,  §  33  (2);  Act  40, 1906,  §  65;  Act 
16, 1906:  Parts  xvin,  xrs,  xx,  xxi,  xxn.   . 


54  THE  TAXATION  OF  LAND  VALUE 

rates  it  is  optional  as  in  New  Zealand.  The  levy  of  a  gen- 
eral rate,  which  is  compulsory,  shall  not  be  less  than  Id.  in 
the  pound,  nor  more  than  2d.  in  the  pound  in  the  case  of 
shires;  in  the  case  of  municipalities  (Sydney  excepted) 
the  minimum  rate  shall  be  Id.  in  the  pound;  while  the  maxi- 
mum shall  yield  a  sum  not  exceeding  that  yielded  by  a  rate 
of  9d.  in  the  pound  on  the  unimproved  capital  value  plus 
Is.  6d.  in  the  pound  on  the  assessed  annual  value. ^  Be- 
side an  additional  general  rate  which  is  optional  with  the 
municipality,  special,  local,  ^  and  loan  rates  may,  at  the 
option  of  the  Council,  be  levied  on  the  unimproved  value. 

The  following  summary  shows  briefly  which  rates  imder 
the  New  South  Wales  system  are  compulsory,  which  op- 
tional, and  the  manner  in  which  the  special  rates  may  be 
instituted: ' 

"  (a)  Shire  general  rates  must  be  only  on  the  unimproved 
capital  value  of  land. 

"  (6)  Municipal  general  rates  must  be  only  on  the  unim- 
proved capital  value  of  land. 

"(c)  Municipal  additional  rates  may  be  either  on  the 
unimproved  capital  value  or  on  the  improved  capital  value 
at  the  option  of  the  Council  subject  to  the  right  of  the  rate- 
payers to  demand  a  poll  of  ratepayers  on  the  question. 

"(d)  Both  shire  and  municipal  special,  local,  or  loan 
rates  may  be  either  on  the  unimproved  or  improved  capi- 
tal value  subject  to  the  right  to  demand  a  poll  as  above.'* 

The  City  of  Sydney,  the  metropolis  of  New  South  Wales, 
was  not  subject  to  the  rating  provisions  of  1906,  because 
it  is  under  a  separate  constitution  and  government.  Until 

*  "The  assessed  annual  value  of  ratable  land  shall  be  nine-tenths  of  the 
fair  average  rental  of  such  land  with  the  improvements  (if  any)  thereon: 
provided  that  such  assessed  annual  value  shall  not  be  less  than  5  per 
cent  of  the  unimproved'  capital  value  whether  improved  or  unim- 
proved." Act  16,  1906,  §  134;  also  §§  150,  151. 

*  Local  rate  is  a  "special  assessment"  rate.  Ibid.,  §§  153-58. 

*  Papers  Relative  to  the  Working  of  Taxation  of  the  Unimproved  Value 
of  Land  in  New  South  Wales  (Cd.  3761),  1907,  p.  5. 


LAND  TAXES  IN  AUSTRALASIA  55 

1908,  all  rates  in  Sydney  were  levied  on  the  annual  rental 
of  real  property.  But  under  the  "Sydney  Corporation 
(Amendment)  Act,  1908"  the  system  of  rating  on  the 
changed  basis  was  inaugurated.^  Accordingly,  the  coun- 
cil is  authorized  to  levy  a  general  rate  on  the  unimproved 
value  in  addition  to  any  rate  already  in  force.  That  is, 
part  or  all  of  the  revenue  of  Sydney  may  now  be  raised  by 
the  new  method.^  The  total  amount  leviable  shall  not 
exceed  the  amount  which  would  be  yielded  by  a  rate  of  3d. 
in  the  pound  on  the  unimproved  capital  value  and  23.  in  the 
pound  on  the  average  annual  value  taken  together,  of  all 
the  ratable  property  in  the  city.  The  general  rate  on  un- 
improved value  shall  not  be  less  than  Id.  in  the  pound. 

Thus  it  is  evident  that  the  major  portion  of  the  local 
revenue  in  New  South  Wales  which  is  contributed  by  the 
general  rates  is  raised  by  the  tax  on  unimproved  value. 
Except  for  the  alienated  lands  within  the  Western  Division 
of  the  state  (not  yet  included  under  shire  and  municipality 
areas),'  the  state  land  tax  stands  suspended,  and  the  "  en- 
dowments" to  the  local  governments  have  been  reduced. 

§  14.  Besides  the  state  and  local  land  taxes,  the  federal 
tax  remains  to  be  analyzed.  In  1910,  the  Governor-Gen- 
eral of  the  Commonwealth  of  Australia  in  his  message  to 
the  Houses  of  Parliament  then  assembled  proposed  the 
taxation  of  land  on  its  unimproved  value  in  the  interest  of 
closer  settlement.*  The  proposal  had  been  in  the  platform 
of  the  Labor  Party  almost  since  the  federation  of  the  states 
in  1901.^  The  occasion,  namely,  the  fiscal  need,  was,  how- 
ever, lacking.  But  when  the  "Labor  Parliament"  with  a 

*  New  South  Wales,  Act  No.  27, 1908.  "An  Act  to  provide  for  levying 
rates  on  the  unimproved  value  of  land  in  the  City  of  Sydney,"  etc., 
Partn. 

»  Ibid.,  §  4. 

*  The  First  Annual  Report  of  the  Commissioner  of  Land  Tax  of  the 
Commonwealth  of  Australia  (1912),  p.  4. 

*  Commonwealth  of  Australia,  Pari.  Debates,  vol.  lv  (1910),  p.  8. 

*  The  Australasian,  February  24,  1906,  p.  455;  April  S,  1909,  p.  849, 
and  elsewhere. 


M  THE  TAXATION  OF  LAND  VALUE 

majority  in  both  Houses  came  into  power,  revenue  for  the 
federal  pension  system,  "^  as  well  as  the  encouragement  of 
denser  settlement,  was  made  the  excuse.  There  is  no 
question,  however,  that  the  ulterior  motive  in  the  minds 
of  the  legislators  and  their  constituents  was  the  subdivision 
of  the  large  estates,  especially  those  belonging  to  absen- 
tees. ^ 

This  purpose  is  apparent  from  the  provisions  of  the  Act 
itself.  Thus  by  far  the  most  important  clauses  of  the 
"Land  Tax  Assessment  Act,  1910"  ^  are  those  which  dis- 
tinguish between  the  rate  of  tax  on  absentee  and  that  on 
non-absentee  holdings  and  which  exempt  £5000  value  in 
case  of  the  latter  holdings.  "  The  taxable  value  of  all  the 
land  owned  by  a  person  is  — 

**(a)  in  the  case  of  an  absentee  .  .  .  the  total  sum  of  the 
unimproved  value  of  each  parcel  of  land; 

*\h)  in  the  case  of  an  owner  not  an  absentee  .  .  .  the 
balance  of  the  total  sum  of  the  unimproved  value  of  each 
parcel  of  the  land,  after  deducting  the  sum  of  £5000. 
Every  part  of  a  holding  which  is  separately  held  by  any 
occupier,  tenant,  lessee,  or  owner,  is  deemed  to  be  a  sep- 
arate parcel."  * 

An  absentee  is  one  who  does  not  reside  in  AustraUa  or 
in  a  territory  under  the  authority  of  the  Commonwealth, 
and  the  word  is  defined  to  include  a  person  who  is  absent 
from  Australia  at  the  time  of  the  assessment  or  who  has 
been  absent  more  than  half  of  the  period  of  twelve  months 

1  The  Australasian,  February  24,  1906,  p.  455  ;  April  S,  1909,  p.  849, 
and  elsewhere. 

*  Commonwealth  of  Australia,  Pari.  Debates  (1910),  vol.  lv,  pp.  16, 
18,  64, 140, 144,  et  passim.  "Our  policy  is  to  break  up  the  big  estates  and 
to  make  room  for  immigrants.  .  .  .  We  are  desirous  of  breaking  up  these 
huge  estates  because  to  the  people  this  wealth  belongs,"  etc. 

»  Commonwealth  of  Australia,  Nos.  21  and  22  of  1910,  §  11. 

*  The  High  Court  has  interpreted  this  to  mean  that  an  owner  may  be 
taxed  on  the  aggregate  unimproved  value  of  the  parcels  of  land  which  he 
holds  less  the  sum  of  £5000.  Cf.  First  Annual  Report  of  the  Commissioner 
of  Land  Tax  of  the  Commonwealth  of  Australia  (1912),  p.  14. 


LAND  TAXES  IN  AUSTRALASIA  67 

immediately  preceding  the  assessment.^  Every  absen- 
tee, furthermore,  must  be  represented  by  some  person  in 
Australia.  In  case  there  is  no  authorized  agent  the  person 
who  transmits  income  to  the  owner  is  held  liable  for  the 
tax.  The  public  oflScer  of  the  company  ^  is  held  to  be  the 
agent  of  an  absentee  shareholder  who  is  subject  to  the  land 
tax. 

In  accordance  with  the  intention  of  the  law  to  hold  all 
persons  who  derive  income  from  land  of  taxable  value 
liable  as  owners,  some  specifications  with  regard  to  lease- 
holds, corporation  holdings,  and  mortgaged  land  had  to  be 
made.  So  with  respect  to  leaseholds,  if  they  antedate  the 
Act,  the  lessee  pays  the  tax  on  the  difference  between  the 
capitalized  value  of  the  rent  paid  by  him  and  the  actual 
unimproved  capital  value  of  the  estate.'  If  his  rent  be  four 
and  one-half  per  cent  or  more  of  the  unimproved  capital 
value,  he  is  not  liable  for  the  tax,  the  assumption  being 
that  four  and  one-half  per  cent  (the  average  earning  rate 
of  mortgages)  is  a  fair  rental.*  In  case  of  a  leasehold 
acquired  since  the  date  of  the  Act,  the  lessee  is  deemed  the 
owner,  although  liable  only  to  an  amount  proportionate  to 
his  interest  in  the  land.^  In  order  to  make  absentee  share- 
holders liable,  the  company  is  required  to  furnish  the  names 
of  the  absentee  shareholders  and  of  the  other  shareholders 

.    »  Commonwealth  of  Australia,  1910,  No.  22,  §  3. 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax,  etc.  (1912), 
p.  8. 

*  In  computing  the  imimproved  value  of  the  lessee's  interest  in  the 
land,  the  imexpired  tenn  of  the  lease  must  be  taken  into  account. 

*  "The  assumption  appears  reasonable  that  any  earning  value  of  a 
property  in  excess  of  4^  per  cent  (average  earning  rate  of  mortgages) 
is  attributable  either  to  the  improvements  or  the  effective  use  made  of 
them  by  the  person  in  occupation."  Ibid. 

'  Commonwealth  of  Australia,  1910,  No.  22,  §  27.  As  the  commissioner 
of  the  land  tax  points  out,  the  effect  of  this  provision  is  that  the  owner  of 
an  estate  leased  by  him  to  another  may,  in  his  returns,  omit  the  inclusion 
of  this  estate  with  any  other  estates  which  he  owns,  thus  evading  the 
payment  of  a  higher  rate  that  he  otherwise  would  be  liable  for.  Cf.  First 
Annual  Report  of  tlie  Commissioner  of  Land  Tax,  etc.  (1912),  p.  15. 


58  THE  TAXATION  OF  LAND  VALUE 

who  own  more  than  £5000  worth  of  land,  including  other 
land  held  by  them,  for  the  amount  of  taxable  estate,  and 
the  rate  of  tax  varies  with  the  kind  of  ownership,  whether 
absentee  or  non-absentee.  The  practice  of  the  commis- 
sioner of  the  land  tax  ^  is  "  to  ascertain  the  unimproved 
value  of  that  part  of  a  company's  land  corresponding  to 
a  single  share,  then  to  require  the  company  to  supply  the 
department  merely  with  the  names  of  shareholders  who 
own  shares  to  the  number  deemed  worth  the  trouble  of 
assessment."  The  company  is  not  regarded  as  an  ab- 
sentee; hence  it  is  taxable  only  when  the  estate  owned 
by  it  is  valued  at  more  than  £5000.  With  respect  to  mort- 
gages, no  deduction  from  the  unimproved  value  of  the  land 
is  allowed.  The  mortgagor  is  deemed  the  primary  tax- 
payer except  in  case  of  bankruptcy  when  the  mortgagee 
comes  in  possession. ^ 

In  accordance  with  the  provisions  of  the  Act,  the  Fed- 
eral Parliament  fixed  the  following  rates: '  (a)  In  case  of 
an  owner  not  an  absentee  an  exemption  of  £5000  is  al- 
lowed, above  which  value  the  rate  of  the  tax  is  Id.  on  the 
first  pound  of  excess,  increasing  at  a  uniform  rate,  so  that 
the  tax  is  equal  to  an  average  rate  of  l^d.  in  the  pound  on 
an  estate  having  a  taxable  value  of  £15,000,  2fZ.  in  the 
pound  when  the  taxable  value  is  £30,000, 2^d.  in  the  pound 
when  it  is  £45,000,  3d,  in  the  pound  when  it  is  £60,000, 
and  S^d.  in  the  pound  when  it  is  £75,000.  In  excess  of 
£75,000  the  rate  of  tax  is  Qd.  in  the  pound. 

(6)  In  case  of  an  absentee  no  exemption  is  allowed;  and 
the  rate  of  tax  is  Id.  in  the  pound  on  the  first  £5000,  2d!. 
on  the  first  pound  above  £5000,  the  rate  increasing  after 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax,  etc.  (1912), 
p.  9. 

'  Commonwealth  of  Australia,  1910,  No.  22,  §  31. 

*  The  same  schedules  were  readopted  by  the  Parliament  of  1911  and 
1912.  Cf  Commonwealth  of  Australia,  1911,  No.  12,  and  1912,  No.  37. 
Toward  the  end  of  the  session  in  1914  the  rate  of  the  federal  land  tax  was 
increased.  Cf.  The  Australian  Worker,  January  14,  1915. 


LAND  TAXES  IN  AUSTRALASIA 


59 


that  uniformly,  so  that  it  equals  an  average  rate  of  2id. 
in  the  pound  on  the  excess  over  £5000  when  the  taxable 
value  is  £20,000,  Sd.  in  the  pound  when  it  is  £35,000,  S^d. 
in  the  pound  when  £50,000,  4d.  in  the  pound  when  £65,000, 
and  4|c?,  in  the  pound  when  £80,000.  When  the  taxable 
value  is  in  excess  of  £80,000,  the  rate  of  tax  is  7d.  in  the 
pound. 

Reduced  to  tabular  form  these  rates  are  as  follows:  * 

RATES  OF  TAX  INCREASING  WITH  EVERY  POUND 
OF  TAXABLE  VALUE 


Non-absentee  estate 

Absentee  estate 

£5.001  to  £15,000,  Id.    to  114. 

£5,000  or  less.          Id. 

15,000  "     30,000,  l|d.  "  2d. 

5,001  to  £20,000,  2d. 

to  2H 

80,000  "     45,000,  id.     "  i^d. 

20,000  "     35,000,  2^d. 

"  3d. 

45,000  "     60,000,  2^d.  "  3d. 

35,000  "     50,000,  3d. 

"  3H 

60,000  "     75,000,  3d.     "  3^d. 

50,000  "     65,000,  3U- 

"  4d. 

in  excess  of  75,000,  6d. 

65,000  "     80,000,  4<f. 
in  excess  of    80,000,  7d. 

"  m. 

§  15.  Summary:  Through  all  the  variety  of  legislation 
thus  far  examined  there  run  a  few  threads  of  agreement 
corroborating  the  general  analysis  of  the  purpose  of  the 
land  taxes.  The  close  resemblance  which  is  apparent  be- 
tween the  federal  and  the  state  taxes  is  evident  also  between 
the  different  local  systems.  The  mode  of  assessment  and 
scales  of  rates  of  the  state  and  federal  systems,  moreover, 
are  distinctly  differentiated  from  those  of  the  local  taxes. 
The  progressive  scale  of  rates,  the  exemption  of  smaller 

^  It  must  be  borne  in  mind  that  the  rate  changes  with  every  excess 
poimd  of  taxable  value.  The  formulae  to  compute  the  rate  on  taxable 
value  below  £75,000  and  £80,000,  respectively,  are  as  follows:  in  case  of 

V 
non-absentee:  Rate  =  1  plus       ^^„<^;  in  case  of  an  absentee  estate: 

oO,000 
E 
Rate  =  2  plus       »»n<^-  V  =  the  taxable  value  in  pounds;  E  =  the  ex- 
cess of  taxable  value  over  £5000,  in  pounds.    Cf.  Commonwealth  of 
Australia,  1910,  No.  21,  Schedules. 


eo  THE  TAXATION  OF  LAND  VALUE 

estates  from  the  tax,  the  distinction  drawn  between  the 
absentee  and  the  resident  holder  unmistakably  reveal  the 
purpose  of  the  taxes  levied  by  the  state  and  federal  gov- 
ernments. On  the  other  hand,  the  uniform  general  rate  of 
levy,  from  which  practically  no  landowner  is  exempt,  the 
abolition  of  other  taxes,  and  the  ordinary  restrictions  and 
conditions  laid  down  by  the  superior  civic  jurisdiction,  the 
state  government,  all  point  to  the  fiscal  character  of  the 
local  systems  of  rating  on  the  unimproved  value.  The 
discriminatory  feature  of  the  state  and  federal  land  taxes 
is  wholly  lacking  in  the  local  rates.  This  does  not  mean 
that  the  latter  method  of  raising  revenue  does  not  propose 
to  penalize  the  owner  of  idle  land  and  to  make  the  absen- 
tee owner  aid  in  bearing  the  burden  of  the  expenditures 
which  tend  to  make  his  land  more  valuable.  At  the  same 
time  the  local  rating  systems  on  unimproved  value  are 
proof  that  the  taxation  of  land  value  must  commend  itself 
to  newly  settled  communities  where  land  constitutes  the 
chief  source  of  wealth  and  tends  to  appreciate  in  value. 


CHAPTER  ni 

LAND   TAXES  IN  AUSTRALASIA    (CONCLUDED) 

§  1.  From  the  very  nature  of  the  tax  on  the  unimproved 
value  of  land,  the  importance  of  accurate  valuation  of  the 
land  apart  from  structures  and  other  improvements  is 
obvious;  yet  the  difficulty  implied  in  finding  the  value  of 
the  site  itself,  of  the  "original  and  indestructible  powers 
of  the  soil,"  seems  well  nigh  insuperable.  Indeed,  were  the 
attempt  made  by  the  assessors  to  determine  precisely  the 
value  added  to  the  land  by  virtue  of  every  improvement 
ever  made  thereon,  the  task  would  be  a  futile  one  and  the 
tax  would  be  found  impracticable.  How,  then,  is  the  diffi- 
culty of  separate  assessment  of  land  and  improvements 
solved,  if  at  all?  For  practical  purposes  the  intricacies 
and  difficulties  theoretically  involved  in  the  ascertainment 
of  the  actual  site  value  are  disregarded  in  valuing  the  land 
minus  the  improvements.  A  mean  has  been  struck  and  a 
standard  adopted  which  makes  the  system  of  separate  valu- 
ation practicable  for  assessment  purposes.  In  fact,  for 
other  than  taxing  purposes,  valuers  have  often  found  it 
expedient  to  ascertain  the  value  of  the  land  separately 
from  that  of  the  improvements. 

But,  granting  the  insuperable  difficulty  implied  in  sepa- 
rate valuation,  the  importance  of  an  approximately  accu- 
rate appraisal  of  the  land  cannot  be  overemphasized  in 
reference  to  a  tax  whose  purpose  it  is  to  appropriate  part 
of  the  unearned  increment  and  part  of  the  ever-increasing 
land  value.  Therefore,  the  experience  with  valuation  of 
property  in  Australasia  deserves  careful  consideration. 

It  is  at  first  somewhat  disappointing  to  discover  that  no 
strictly  scientific  system  of  land  valuation  has  been  evolved 
in  Australasia  after  decades  of  practice  with  land  taxation. 


62  THE  TAXATION  OF  LAND  VALUE 

That  is,  instead  of  applying  objectively  certain  scientific 
principles  or  rules  of  valuation  governing  land  value,  such 
as  have  originated  in  this  country,^  the  taxpayers'  returns 
are  in  part  rehed  upon  in  a  few  of  the  Australian  states, 
while  in  all  the  states  as  well  as  in  New  Zealand,  revalua- 
tion is  irregular  and  infrequent.  The  fact  is,  however,  that 
the  empirical  methods  of  land  valuation  seem  to  work 
satisfactorily  there  and  to  present  few  of  the  diflficulties 
of  unequal  assessments  encountered  in  the  United  States. 
The  explanation  lies  in  the  more  efficient  administration 
of  the  valuation  departments  in  the  colonies. 

In  Australasia  the  chief  resources  of  the  tax  commis- 
sioners in  valuation  and  in  verifying  the  self-assessed  re- 
turns of  the  taxpayer  are:  (1)  the  records  of  sale,  a  most 
reliable  check;  (2)  publicity,  for  the  assessment  book  is 
everywhere  open  to  inspection;  (3)  disinterested  assessors; 
and  (4)  the  system  of  government  loans  on  land  on  the 
basis  of  the  valuation.^ 

Altogether,  therefore,  judging  from  the  official  reports 
we  conclude  that  the  system  meets  with  general  approval 
and  satisfaction.  The  reason  seems  to  lie  in  the  fact  that 
uniformity,  if  not  accuracy,  is  attained,  the  latter  depend- 
ing upon  the  efficiency  of  the  particular  administrative 
department. 

§  2.  Turning  to  the  administration  of  the  land  tax,  we 
find  that  the  tax  Acts  lay  down  certain  regulations  regard- 
ing the  organization  of  the  department,  and  the  methods 
of  assessment  and  collection  of  the  tax.  The  chief  guidance 
of  the  assessor  lies  in  the  definitions  in  these  Acts.  The 
fact  that  most  of  the  taxes  were  modeled  after  antecedent 
ones,  after  those  of  the  New  Zealand  system  especially, 
will  render  the  description  of  their  administration  in  the 

^  For  example,  the  Somers  System  or  the  Neill-Hoffman  Rule.  See 
infra,  chapter  \n,  §§  12,  13,  14. 

*  It  is  said  that  since  the  government  loan  system  came  into  vogue, 
the  assessed  value  of  land  has  in  almost  all  cases  exceeded  the  value  for- 
merly entered  on  the  roll. 


LAND  TAXES  IN  AUSTRALASIA  63 

several  states  less  complex.  Speaking  generally,  the  state 
land  taxes  are  under  the  direction  of  the  Commissioner  of 
Taxes  ^  who  in  all  cases  is  the  appointee  of  the  State  Gov- 
ernor. The  Commissioner  of  the  Commonwealth  Land 
Tax  is  the  appointee  of  the  Governor-General.  The  chief 
valuers,  district  valuers,  and  in  some  cases  such  assessors 
as  may  be  deemed  necessary  in  the  administration  of  the 
tax,  are  likewise,  with  few  exceptions,  ^  appointed  by  the 
respective  Governors  of  the  States,  Dominion,  or  Com- 
monwealth.' Under  the  local  systems  the  council  generally 
appoints  all  the  assessors.  The  advantages  of  appointed 
assessors  responsible  to  one  chief  as  compared  with  elected 
assessors  responsible  to  the  constituents  whose  property 
they  value  are  well  recognized.  Moreover,  the  Governors 
are  the  appointed  representatives  of  the  Crown  (although 
they  act  with  the  advice  of  the  Executive  Council)  *  so 
that  the  tax  officials  are  further  removed  from  party  poli- 
tics. The  valuers  and  assessors,  then,  work  in  accordance 
with  the  system  laid  down  by  statutory  enactment,  are 
responsible  to  the  government  alone  and  are  disinterested 
as  to  the  value  set  upon  the  land.^   Some  of  the  statutes 

^  In  Victoria  there  are  three  Commissioners  of  Taxes  appointed  by  the 
Governor-in-Council  (i.e.,  with  the  advice  of  the  Executive  Council,  the 
Ministry).  Cf.  No.  1107,  1890,  §  10;  1  Geo.  V,  No.  2284,  §  4.  In  Tas- 
mania the  appointment  is  subject  to  the  "  Public  Service  Act."  Cf.  Tas- 
mania. 2  Geo.  V,  No.  47,  §§  8,  9. 

2  Since  1896  the  valuation  department  in  New  Zealand  has  been  a 
distinct  institution,  and  separated  from  the  tax  and  assessment  depart- 
ment. The  Valuer-General  is  assisted  by  the  district  valuers,  who  with 
their  assistant  valuers  carry  on  the  actual  work  of  valuation  and  who  are 
in  New  Zealand  appointed  by  the  Public  Service  Commissioner.  Local 
valuers  may  be  temporarily  employed  by  the  Valuer-General.  The  dis- 
trict valuer,  however,  must  approve  of  the  valuation  of  the  local  valuer. 
The  valuer  is  employed  at  a  yearly  salary  and  is  not  permitted  to  under- 
take any  valuation  or  assessment  for  payment  by  an  individual  except 
with  the  written  consent  of  jthe  Valuer-General.  New  Zealand  Official  Year 
Book  (1913),  p.  844. 

»  Cf.  South  Australia,  47  and  48  Vic,  No.  S23,  §§  28,  29;  Western 
Australia,  7  Edw.  VII.  No.  15,  §  3;  Tasmania,  No.  47,  1911,  §§  8,  9. 

*  The  Executive  Council  consists  of  the  Ministry  of  the  party  in  power. 

'  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1900,  pp.  146-47. 


64  THE  TAXATION  OF  LAND  VALUE 

expressly  stipulate  that  the  valuers  employed  shall  be  ex- 
pert, and  shall  have  a  knowledge  of  the  general  value  of 
the  property  in  the  locality.^  In  New  Zealand  a  distinct  de- 
partment, called  the  Valuation  of  Land  Department,  has 
been  created,  at  the  head  of  which  is  the  Valuer-General. 
A  similar  department  has  been  established  by  the  central 
government  of  Australia. 

From  the  standpoint  of  efficiency  and  economy,  it  is 
interesting  to  compare  the  centralized  valuation  system  in 
New  Zealand  with  the  duplicated  valuations  by  the  differ- 
ent civic  authorities  in  Australia.  Before  1896  valuations 
of  land  in  New  Zealand  were  made  separately  by  the  two 
(central  and  local)  taxing  authorities  as  well  as  by  other 
departments  of  government  ^  and  no  uniformity  of  method 
existed.  The  state  taxing  jurisdiction  employed  a  small 
staff  of  valuers  whenever  a  new  valuation  seemed  desir- 
able, while  the  local  bodies  and  other  departments,  e.g., 
the  loan  department,  devised  their  own  methods,  and 
employed  their  own  valuers.  At  present,  the  Valuation  of 
Land  Department  under  state  jurisdiction  supplies  the 
valuation  data  for  all  purposes,  state,  local  and  even  pri- 
vate. In  Australia  this  unification  has  not  yet  been  at- 
tempted. Although  the  state  Acts  provide  for  cooperation, 

*  For  example,  "  the  district  valuers  shall  be  persons  of  reputed  knowl- 
edge of  land  values  and  improvement  values,"  or  "Assessors  for  the  pur- 
poses of  this  Act  shall  so  far  as  practicable  be  persons  having  a  local 
knowledge  of  the  value  of  land  and  of  improvement  values."  Tasmania, 
9  Edw.  VII,  No.  7,  §  7;  Victoria,  1  Geo.  V,  No.  2284,  §  5;  New  South 
Wales,  No.  16,  1906,  §  137. 

*  Some  purposes  for  which  the  District  Valuation  Roll  is  used  are:  — 
(a)  Advances  and  investments  on  mortgage  of  land  by  or  on  behalf  of 

the  New  Zealand  State-guaranteed  Advances  Office,  the  Public 
Trust  OflSce,  the  Government  Insurance  Department,  the  Post 
Office,  the  Commissioner  of  Public  Debts  Sinking  Fund  Office. 
(6)  Stamp  duties,  etc. 

(c)  Claimants  or  Pensioners  under  Old-age  Pensions  Act. 

(d)  Board  of  Land  Purchase  Commissioners,  etc. 

(e)  Maori  Land  Board  and  Native  Land  Court. 
if)  Crown  renewable  leases. 

New  Zealand  Official  Year  Book  (1913),  p.  852. 


LAND  TAXES  IN  AUSTRALASIA  65 

authorizing  the  use  of  the  local  assessment  rolls  and  other 
records,  and  although  the  Commonwealth  Land  Tax  De- 
partment "supplies  free  of  cost  to  state  governments  and 
municipalities  information  as  to  the  improved  and  unim- 
proved values  returned  by  landowners"  ^  and  is  author- 
ized in  turn  to  seek  information  from  any  subordinate 
government  division,  a  taxpayer  in  Australia  may  be 
called  upon  to  make  returns  to  all  three  authorities,  local, 
state,  and  federal.  And  because  of  differences  in  definition, 
in  law,  and  in  method,  no  uniformity  as  regards  valuation 
is  possible. 

The  valuer  is  supplied  with  data  found  in  the  Land 
Transfer  and  Deeds  Registry  Office  and  with  other  evi- 
dence affecting  the  value  of  the  land.  From  these  and 
other  information  which  he  gathers  he  estimates  the  unim- 
proved value,  the  value  of  the  improvements,  and  the 
total  or  capital  value  of  the  land.  For  the  purpose  of  ob- 
taining the  needed  information  the  commissioners  and 
valuers  are  empowered  to  inspect  any  documents,  such 
as  records  of  sales,  pertaining  to  the  value  of  the  land. 
They  may  obtain  detailed  reports  from  local  valuers,  and 
may  inspect  the  land  and  elicit  any  information  that 
they  may  deem  necessary.^  From  the  returns  of  the  tax- 
payer, supplemented  by  information  from  other  available 
sources,  the  assessment  book  is  prepared.'  The  following 

'  First  Annual  Report  of  the  Commissioner  of  Land  Tax  of  the  Common- 
wealth of  Australia  (1912),  p.  12.  "Negotiations  are  in  progress  with  the 
State  Governments  with  the  view  to  obtaining  regular  statements  of 
transactions  relating  to  transfers  of  land."  Ibid.,  p.  12.  In  the  new  "Rat- 
ing on  Unimproved  Values  Act"  of  1914,  the  Victorian  (state)  land  tax 
assessment  roll  is  to  be  used  for  local  rates.  Cf.  Victoria,  4  Geo.  V,  No. 
2478. 

*  "Every  classifier  appointed  under  this  Act  shall  for  the  purpose  of 
executing  his  duties  under  this  Act  have  power  to  enter  at  all  reasonable 
hours  in  the  daytime  into  and  upon  any  land  and  do  such  matters  and 
things  thereon  as  may  be  reasonably  necessary  and  may  put  to  any  per- 
son in  occupation  or  charge  of  any  land  .  .  .  any  questions  which  may 
be  necessary,"  etc.  Victoria,  1890,  No.  1107,  §  IS. 

*  In  Victoria  this  book  is  known  as  the  Land  Tax  Register,  1890,  No. 
1107,  §  31. 


68  THE  TAXATION  OF  LAND  VALUE 

are   the   usual  particulars  recorded  on   the   assessment 
roll:  ' 

1.  A  short  description  of,  or  reference  to  the  land  as- 
sessed, 

2.  The  actual  value  of  the  land  assessed, 

3.  The  unimproved  value  of  the  land  assessed, 

4.  The  amount  of  land  tax, 

5.  The  names  and  description  of  the  taxpayers  in  re- 
spect of  the  land  assessment,  so  far  as  such  names 
and  descriptions  can  be  readily  ascertained. 

In  general  the  assessment  book  contains  both  the  im- 
proved and  unimproved  value  of  the  land  in  separate  col- 
umns.^ Both  South  Australia  and  Western  Australia  pro- 
vide for  additional  assessment  books  to  be  prepared  an- 
nually. These,  called  in  South  Australia  the  Additional 
Iiand  Tax  Register  and  the  Absentee  Land  Tax  Register, 
contain  the  assessments  upon  which  the  additional  and 
absentee  taxes  are  paid.'  The  commissioner  is  empowered 
to  make  any  alterations  in  the  assessment,  if  he  is  of  the 
opinion  that  it  is  not  correct.  The  taxpayer  is  notified  of 
the  amount  of  assessment  and  the  assessment  book  is  then 
made  accessible  for  inspection.  This  feature  of  publicity 
is  of  great  importance  in  case  of  local  assessment  books, 
since  it  enables  the  ratepayers  to  compare  their  own 
assessments  with  those  of  their  neighbors. 

Should  the  owner  or  taxpayer  dissent  from  the  assessed 
value  of  the  land  recorded  on  the  assessment  roll,  he 
may  have  recourse  to  the  courts  provided  for  in  the  Acts. 
These  courts,  known  by  different  names  in  the  several 

»  Sovth  Australia,  47  and  48  Vic,  No.  323,  §  37. 

*  The  Tasmanian  statute  requires  the  following  particulars  to  be  re- 
corded: (1)  consecutive  number;  (2)  description;  (3)  situation;  (4)  name  of 
owner;  (5)  name  of  occupier;  (6)  area;  (7)  value  of  improvements;  (8)  un- 
improved value;  (9)  capital  value.  Tasmania,  9  Edw.  VII,  No.  7,  §  11. 

»  South  Australia,  57  and  58  Vic,  No.  604,  §  6;  Western  Australia,  7 
Edw.  VII,  No.  15,  §  34. 


LAND  TAXES  IN  AUSTRALASIA  67 

states,^  are  specially  created  courts  of  appeal,  the  judges  of 
which  are  appointed  by  the  Governors,  ^  as  are  the  tax  com- 
missioners. The  Victorian  statute,  for  example,  requires 
the  court  to  consist  of  three  members,  one  of  whom  shall 
be  a  Judge  of  Coimty  Coiu^s,  or  a  Police  Magistrate,  while 
the  other  two  shall  be  persons  possessing  a  knowledge  of 
the  value  of  land  and  improvements.'  This  court  is  em- 
powered to  summon  witnesses  and  to  select  a  convenient 
place  for  its  sittings.  Except  on  questions  of  law,  the  de- 
cisions of  the  court  of  appeal  are  final.  When  the  point 
at  issue  is  a  purely  legal  one,  however,  an  appeal  to  the 
Supreme  Court  is  possible.  In  New  Zealand,  indeed,  an 
appeal  to  the  Supreme  Court  may  be  made  even  on  a  ques- 
tion of  fact,  if  the  judge  of  the  Magistrate's  Court  is  satis- 
fied that  the  amount  of  tax  bona  fide  in  dispute  between 
the  objector  and  the  commissioner  exceeds  £200.* 

§  3.  More  important  than  the  procedure  of  assessment 
discussed  above  is  the  question  of  accurate  valuation  of 
the  land.  With  regard  to  the  frequency  of  appraisal  no 
uniformity  exists  among  the  several  states.  The  Local 
Government  Act  of  New  South  Wales  provides  for  annual 
valuations,^  while  in  Sydney  the  law  provides  for  one  val- 
uation at  least  every  five  years.*  Annual  returns  are  made 
in  New  Zealand '  but  actual  valuations  of  the  land  are  in- 

^  In  Victoria,  called  the  Assessment  Court;  in  Western  Australia,  Tas- 
mania, and  New  South  Wales,  the  Court  of  Review;  in  Queensland,  the 
Valuation  Court. 

*  In  New  Zealand,  one  member  of  the  Assessment  Court  may  be 
appointed  by  one  or  more  local  authorities  of  the  district  whose  roll  is 
under  dispute,  but  the  appointee  must  not  be  a  member  of  those  local 
bodies.  New  Zealand  Official  Year  Book  (191S),  p.  854. 

»  Victoria,  1  Geo.  V,  No.  2284,  §  23. 

*  New  Zealand,  3  Geo.  V,  No.  10,  §  24. 

«  New  South  Wales,  No.  16,  1906,  §  135. 

«  Ibid.,  No.  27,  1908,  §  6.  The  now  suspended  law  in  New  South 
Wales  (1895)  provided  for  quinquennial  valuations  of  the  land  and  an- 
nual valuations  of  income. 

"*  In  New  Zealand  no  general  valuations  of  land  have  been  made  since 
1897,  the  practice  being  to  have  portions  of  the  Dominion  revalued  from 
time  to  time.  New  Zealand  Official  Year  Book  (1913),  p.  858. 


68  THE  TAXATION  OF  LAND  VALUE 

frequent,  while  in  Queensland  and  South  Australia  valua- 
tions are  triennial.  The  latter  state  in  1902  amended  the 
provision  for  quinquennial  valuations.^  But  in  accord- 
ance with  the  provisions  elsewhere  noted,  ^  additional 
valuations  for  the  absentee  tax  and  for  the  additional 
rates  must  be  made  annually  in  South  Australia.  In  the 
other  states  valuations  take  place  at  the  discretion  of  the 
commissioner,  although  in  Victoria  two  years  at  least  must 
have  elapsed  between  general  valuations.'  The  Common- 
wealth Act  authorizes  the  commissioner,  *'  if,  as,  and  when 
he  thinks  fit,"  to  cause  valuation  of  any  land  to  be  made.* 
The  commissioners  of  Victoria  will  make  a  valuation  for 
public  departments  at  their  request,  and  for  owners  also, 
provided  the  latter  pay  the  fee  of  the  valuer.^ 

In  providing  specifically  for  returns  by  the  taxpayer, 
instead  of  for  an  objective  appraisal  of  all  the  land,  i.e., 
in  rem,  some  of  the  states  have  retained  the  antiquated 
method  of  land  assessment.  That  this  method  facilitates 
inaccuracies  and  inequalities  in  assessment  among  the 
different  states  and  that  it  allows  personal  influences  to 
enter,  is  unquestioned.  True,  the  valuers  employ  certain 
checks  ^  against  undervaluations;  nevertheless,  the  sys- 
tem is  unscientific  and  does  not  prevent  inaccuracies.  A  very 
important  provision  to  check  gross  undervaluation  is  that 
by  which  the  government  reserves  the  right  to  purchase 
from  the  owner  at  the  assessed  valuation  when  the  latter 
is  dissatisfied  with  the  commissioner's  estimate.  Unques- 
tionably under  the  New  Zealand  and  the  Commonwealth 
Acts  which  provide  for  such  acquisition,  the  owner  is  de- 
terred from  undervaluing  his  estate  and  from  appealing 
from  the  commissioner's  estimate,  lest  the  government 

»  Cf.  South  Australia,  47  and  48  Vic,  No.  S23,  §  36,  and  2  Edw.  VII, 
No.  782,  §  3. 

'  See  supra,  chapter  n,  §  10,  chapter  in,  §  2. 
.  »  Victoria,  1  Geo.  V,  No.  2284,  §  15. 

*  Commonwealth  of  Australia,  1910,  No.  22,  §  17. 
• »  Victoria,  1  Geo.  V,  No.  2284.  §  72.  'See  aupra,  §  1. 


LAND  TAXES  IN  AUSTRALASIA  69 

oflFer  to  purchase  the  land.  In  case  of  an  app)eal  by  the 
owner,  "if  the  Justice  (1)  is  satisfied  that  the  owner  has 
understated  the  unimproved  value  of  the  land  to  the  ex- 
tent of  twenty-five  per  cent  or  more,  and  (2)  is  not  satis- 
fied that  the  undervaluation  was  not  made  with  a  view  of 
evading  taxation,  he  shall  make  the  declaration  applied 
for,"  namely,  to  purchase  the  land  on  behalf  of  the  com- 
missioner.^ Under  the  Commonwealth  Act  the  priority 
of  purchase  is  allowed  the  state  in  which  the  land  in  ques- 
tion is  situated.  In  New  Zealand  also  the  owner  has  the 
option  of  accepting  the  higher  value  or  of  selling  the  land 
to  the  government  at  that  value,  just  as  the  government 
retains  the  right  of  purchasing  the  land  in  case  of  an  under- 
valuation by  the  owner.  For  example,  if  the  appeal  of  the 
owner  against  the  assessment  fails  to  be  sustained  by  the 
assessment  court,  the  owner  may  "within  fourteen  days  of 
the  hearing,  require  the  Valuer-General  either  to  reduce 
to  the  value  which  he  considers  to  be  the  fair  selling  value, 
or  else,  to  purchase  the  property  at  that  value.'*  ^  On  the 
other  hand,  the  Department,  regardless  of  the  decision  of 
the  assessment  court,  may  offer  to  purchase  the  property 
if  the  owner  refuses  to  accept  the  estimate  of  the  valuer. 
As  an  alternative  another  course  of  action  is  open  to  the 
owner.  He  may  ask  for  a  revaluation  of  his  land,  which  is 
granted  provided  he  pays  the  fee  for  such  a  valuation. 
But  in  this  case,  if  the  last  value  fails  to  tally  with  the  pre- 
vious one,  regardless  whether  it  is  more  or  less  than  the 
first,  the  last  appraisal  is  substituted  on  the  roll  as  the  cor- 
rect value. 

§  4.  The  considerations  discussed  in  the  preceding  sec- 
tions are,  however,  incidental  details  compared  with  the 
fundamental  problem  of  ascertaining  an  accurate  valua- 
tion of  the  site  apart  from  all  the  improvements  upon  it. 
For  this  purpose  the  chief  guides  of  the  assessor  are  the 

*  Commonwealth  of  Australia,  1910,  No.  22,  §  48. 

*  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  p.  155. 


70  THE  TAXATION  OF  LAND  VALUE 

definitions  of  "capital  value,"  "improvements,""  value  of 
improvements,"  and  "unimproved  value,"  the  definitions 
embodied  in  the  Acts. 

"  Capital  value,"  by  which  is  always  understood  the 
improved  capital  value  of  land,  means  "the  sum  which 
the  owner's  estate  or  interest  therein,  if  unencumbered 
by  any  mortgage  or  other  charge  thereon,  might  be  ex- 
pected to  realize  at  the  time  of  valuation  if  offered  for  sale 
on  such  reasonable  terms  and  conditions  as  a  bona  fide 
seller  might  be  expected  to  require."  ^  This  is  in  other 
words  the  selling  or  market  price,  which  the  assessor  can 
often  ascertain  from  the  records  of  sale  and  from  inquiries 
from  realty  dealers.  The  capital  value  differs  from  the 
capitalized  annual  rental,  the  rental  actually  paid;^  and 
it  is  obvious  that  the  rental  yielded  by  a  dilapidated  struc- 
ture on  first-class  land,  for  example,  is  by  no  means  a  cri- 
terion of  the  selling  value  of  the  site.  Likewise  with  unoc- 
cupied land  which  yields  no  rental  at  all.  It  is  with  rea- 
son, then,  that  the  taxation  on  "capital"  is  superseding 
the  taxation  on  "annual"  value.  But  the  adoption  of  the 
principle  of  capital  value  as  the  basis  of  taxation  involves 
some  difficulty  as  regards  leaseholds,  especially  those  of 
long  duration.  In  such  cases  an  adjustment  must  be  made 
in  consideration  of  the  encumbered  condition  of  the  prop- 
erty. What  the  method  of  adjustment  is  will  be  considered 
hereafter. 

Assuming  that  the  capital  value  can  be  ascertained,  it 
follows  from  the  definition  that  if  you  deduct  the  value  of 
all  the  improvements  from  the  improved  capital  value,  the 
result  is  the  unimproved  capital  value,  and  that  is  the  tax- 
able value.  What,  then,  constitute  improvements  and  how 
is  their  value  to  be  ascertained?  To  quote  a  few  definitions: 
**  'Improvements'  on  land  means  all  work  done  or  mate- 

1  New  Zealand,  3  Geo.  V,  No.  15,  §  3;  Cf.  also  Victoria,  1  Geo.  V,  No. 
2284.  §  S. 
'  In  Australasia,  this  is  called  annual  value. 


LAND  TAXES  IN  AUSTRALASIA  71 

rial  used  at  any  time  on  or  for  the  benefit  of  the  land  by 
the  expenditure  of  capital  or  labor  by  any  owner  or  occu- 
pier thereof  in  so  far  as  the  effect  of  the  work  done  or  mate- 
rial used  is  to  increase  the  value  of  the  land,  and  the  bene- 
fit thereof  is  unexhausted  at  the  time  of  valuation;  but 
does  not  include  work  done  or  material  used  on  or  for  the 
benefit  of  the  land  by  the  Crown  or  by  any  statutory  pub- 
lic body,  except  so  far  as  the  same  has  been  paid  for  by 
the  owner  or  occupier  either  by  way  of  direct  contribution 
or  by  way  of  special  rates  or  loans  raised  for  the  purpose  of 
constructing  within  a  coimty  any  road,  bridge,  irrigation 
works,  water-races,  drainage  works,  or  river-protection 
works:  Provided  that  the  value  of  improvements  made 
out  of  loan  moneys  raised  for  the  purpose  of  constructing 
within  a  county  any  road  .  .  .  shall  not  exceed  the  amount 
of  principal  estimated  by  the  Valuer-General  to  have  been 
repaid  by  the  owner  in  respect  of  any  such  loan  by  way  of 
special  rates."  ^ 

"'Improvements'  include  houses  and  buildings,  fenc- 
ing, planting,  excavations  for  holding  water,  wells,  ring- 
barking,  clearing  from  timber,  or  scrub,  or  sweet  briar,  or 
noxious  weeds,  or  laying  down  in  grass  or  pasture,  and  any 
other  improvements  whatsoever  the  benefit  of  which  is 
unexhausted  at  the  time  of  valuation."  2 

Very  similar  definitions  appear  in  all  the  Acts,  but  there 
is  no  uniformity  as  to  whether  minerals,'  timber,  and  other 
products  are  to  be  included  under  improvements,  that  is, 
to  be  deducted  from  the  value  of  the  land.  For  example, 
the  Victorian  statute  provides  that  the  value  of  minerals 
shall  not  be  taken  into  accoimt  in  estimating  the  value  of 
the  land,  meaning  by  minerals,  "  all  minerals,  metals,  coal 
or  precious  stones  existing  on  or  beneath  the  surface  of  the 

1  New  Zealand,  S  Geo.  V,  No.  15,  §  3. 

>  New  South  Wales,  69  Vic,  No.  15,  §  67. 

*  The  question  whether  minerals,  a  wasting  asset,  should  be  considered 
aa  part  of  the  value  of  the  land  or  whether  they  should  be  deducted  as 
other  products  is  of  more  than  theoretic  importance  as  will  be  shown  later. 


72  THE  TAXATION  OF  LAND  VALUE 

land."  *  Likewise,  New  Zealand  exempts  minerals  as  well 
as  timber  and  flax.  But  this  proviso  is  made:  "if  the  com- 
missioner is  of  opinion  that  any  land  containing  minerals 
or  having  standing  timber  or  flax  thereon  is  not  being 
worked  or  used  in  good  faith  and  to  an  adequate  extent  for 
the  purpose  of  extracting  the  said  minerals,  or  of  cutting  the 
said  timber  or  flax,  such  minerals,  timber  or  flax  shall  be 
excluded  from  the  provisions  of  this  section  and  land  tax, 
both  ordinary  and  graduated,  shall  be  assessed  and  paid."  ' 
Under  the  Commonwealth  Act,  however,  all  minerals 
imder  private  ownership,'  except  gold  and  silver,  which 
are  specially  reserved  to  the  Crown  and  which  can  only  be 
removed  by  lessees  of  the  Crown  or  by  special  agreements 
with  the  owners,  are  part  of  the  taxable,  unimproved  value.* 
When  minerals  are  included  under  imimproved  land,  the 
difliculty  of  ascertaining  their  value  is  encountered,  since 
the  value  of  minerals  before  the  mine  has  been  worked 
can  only  be  guessed  at.  Li  such  cases  the  valuer  must  not 
only  fix  a  speculative  value  for  the  unworked  minerals, 
but  must  deduct  from  such  value  any  expenditures  incurred 
by  the  owner  in  boring,  probing,  and  otherwise  testing  the 
mine. 

Having  defined  "improvements,"  the  next  query  is 
how  to  estimate  their  value.  The  "  '  value  of  improve- 
ments '  means  the  added  value  which  at  the  date  of  valua- 
tion the  improvements  give  to  the  land."  ^  Simple  as  this 
definition  sounds,  it  involves  many  practical  diflBculties. 
To  ascertain  the  unimproved  value  of  the  land  it  is  neces- 
sary— 

(a)  to  deduct  from  the  capital  value  the  expenditure  for 
all  improvements  that  have  enhanced  the  value  of  the 

1  Victoria.  1  Geo.  V,  No.  2284,  §  37. 

*  New  Zealand,  7  Edw.  VII,  No.  18,  §  22. 

*  Mines  held  under  leasehold  from  the  Crown  are  not  taxable. 

*  First  Annual  Report  of  the  Commisaioner  of  Land  Tax  of  Common- 
wealth  of  AvMralixi,  p.  16. 

»  New  Zealand,  3  Geo.  V,  No.  15,  §  3. 


LAND  TAXES  IN  AUSTRALASU  78 

land  and  only  in  so  far  as  they  have  enhanced  the  value, 
that  is,  should  the  expenditure  have  been  made  unneces- 
sarily or  wastefuUy  without  producing  an  appreciation  in 
value,  such  outlay  is  not  deductible; 

(6)  to  deduct  the  value  of  the  outlay,  if  the  benefit  of 
the  improvement  be  unexhausted  at  the  time  of  appraisal; 
otherwise,  that  is,  if  the  improvement  no  longer  affects 
the  value  of  the  site,  irrespective  of  the  original  cost  of 
such  improvement,  no  deduction  shall  be  allowed; 

(c)  not  to  allow  for  any  appreciation  in  value  due  to  a 
public  improvement  unless  it  has  been  paid  for  by  a  special 
assessment  levy; 

(d)  to  allow  only  the  original  cost  of  the  improvement 
irrespective  of  the  appreciation  in  excess  of  the  cost.^  "It 
is  the  actual  improvement  which  is  valued,  not  the  effect 
of  that  improvement.  For  instance,  supposing  that  the 
expenditure  of  a  small  sum  in  cutting  an  outlet  for  water 
had  converted  a  swamp  into  first-class  agricultural  land. 
The  fact  that  the  swamp  was  capable  of  easy  drainage 
would  enhance  its  unimproved  value,  and  the  cost  only 
of  cutting  the  drain  would  be  valued  as  the  improve- 
ment." 2 

The  difficulty  of  adjusting  the  relative  values  of  the  in- 
terests in  the  land  among  the  owner,  lessee,  and  often  sub- 
lessee is  met  in  various  ways  by  the  several  states.  In  gen- 
eral, the  principle  is  adhered  to  that  the  owner  of  the 
fee-simple  shall  be  held  liable  for  the  tax.  Nevertheless,  to 
respect  contracts  entered  into  prior  to  the  enactment  of 
the  tax,  the  lessee  is  sometimes  deemed  the  owner.  For 
example,  where  the  rental  of  a  leasehold  does  not  change 
with  the  value  of  the  land,  and  where  the  lessee  binds 
himself  to  pay  all  taxes,  the  latter  may  be  held  liable;  for 

^  "  Provided  that  the  value  of  improvements  shall  in  no  case  be  deemed 
to  be  more  than  the  cost  of  such  improvements  estimated  at  the  time  of 
valuation,  exclusive  of  the  cost  of  repairs  and  maintenance."  Cf.  New 
Zealand  Official  Year  Book  (1913),  p.  850. 

•  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  150. 


74  THE  TAXATION  OF  LAND  VALUE 

in  that  case  the  owner,  it  is  assumed,  would  be  unable  to 
recoup  himself  for  the  payment  of  the  tax,  while  the  lessee 
would  pocket  the  appreciated  land  value.  On  the  other 
hand,  the  possibility  of  reversion  at  the  termination  of  the 
lease  presents  another  aspect  of  the  question,  for  from  this 
standpoint  the  owner  of  the  fee-simple  may  be  deemed 
the  rightful  taxpayer.^  In  general,  therefore,  attempts  are 
made  to  compute  the  respective  interests  of  lessor,  lessee, 
and  sub-lessee,  by  taking  into  account  (1)  the  unexpired 
term  of  the  lease,  (2)  the  annual  rent  agreed  upon,  and  (3) 
the  terms  of  the  lease,  as  to  the  rights  of  renewal,  compen- 
sation, etc. 

By  reason  of  the  agreements  under  leasehold,  the  capi- 
tal value  of  leased  land  must  often  be  determined  by  other 
criteria  than  its  unencumbered  market  value.  For  ex- 
ample, under  the  Commonwealth  Act  the  imimproved 
value  of  leaseholds  is  ascertained  by  assuming  that  the 
actual  rental  paid  by  the  lessee  is  four  and  one-half  per  cent 
of  the  unimproved  value.  This  assumption  is  based  on 
the  average  rate  on  mortgages,  which  is  held  to  represent 
the  earning  value  of  the  property;  any  excess  over  four 
and  one-half  per  cent  is  attributed  to  the  improvements 
or  to  the  owner's  exertions.'^  Or  in  Western  Australia, 
the  unimproved  value  of  land  held  under  any  leasehold 
estate  or  interest  from  the  Crown,  without  the  right  of 
purchase,  is  computed  at  a  sum  "equal  to  twenty  times 
the  excess  of  the  amount  of  the  fair  annual  rent  at  which 
the  land  would  let  under  such  reasonable  conditions  as  a 
bona  fide  lessee  would  require,  assuming  the  actual  im- 
provements (if  any)  had  not  been  made,  above  the  annual 
rent  .  .  .  reserved  by  the  lease."  ' 

1  New  Zealand,  3  Geo.  V,  No.  10,  §  39;  Victoria,  1  Geo.  V,  No.  2284, 
§§  39,  40. 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax  of  the  Common' 
wealth  of  Aiistralia,  p.  8.  In  New  Zealand  "the  fair  market  annual  rental 
of  any  property  is  assumed  under  the  Act  to  be  five  per  cent  of  its  total 
value."  New  Zealand  Official  Year  Book  (1913),  p.  857. 

»  Western  Australia,  7  Edw.  VII,  No.  15,  §  2. 


LAND  TAXES  IN  AUSTRALASIA  75 

To  complete  the  series  of  definitions  laid  down  for  the 
guidance  of  the  valuer,  the  meaning  of  "imimproved 
value"  is  quoted  from  the  New  South  Wales'  Act  of 
1895.^  "'Unimproved  value'  means,  in  respect  of  land, 
the  capital  sum  for  which  the  fee  simple  estate  in  such  land 
would  sell,  under  such  reasonable  conditions  of  sale  as  a 
bona  fide  seller  would  require,  assuming  the  actual  improve- 
ments (if  any)  had  not  been  made,  and  in  case  of  condi- 
tionally purchased  land,  of  which  no  grant  shall  have  been 
issued,  after  deducting  also  the  balances  or  amount  of 
purchase  money  due  to  the  Crown  in  respect  of  the  same: 
Provided  that  the  unimproved  value  of  lands  reclaimed 
from  the  sea,  or  from  any  harbor  or  river,  or  made  fit  for 
building  purposes  by  leveling  or  quarrying,  or  by  the  erec- 
tion of  retaining  walls,  or  by  any  similar  operations  or 
works,  shall  be  the  capital  sum  for  which  the  said  land 
would  sell  imder  reasonable  conditions,  after  deducting 
from  such  sum  the  cost  of  reclamation  or  making,  as  well 
as  all  other  improvements." 

It  is  clear  from  the  above  definition  that  "unimproved 
value"  means  neither  the  "prairie"  value  of  the  land,  nor 
the  present  value  of  the  bare  land,  regardless  of  the  general 
progress  of  the  locality,  of  the  public  improvements,  and 
of  the  utilization  of  the  adjoining  area.  All  these  influences 
indeed  do  affect  the  unimproved  values  of  the  district. 
In  seeking  to  ascertain  the  unimproved  value  of  some  par- 
ticular parcel  of  land,  then,  the  valuer  should  view  it  in 
relation  to  the  surrounding  land,  assuming  that  the  parcel 
under  consideration  was  alone  unimproved.  And  the 
amount  by  which  the  capital  value  of  the  property  exceeds 
the  site  value  constitutes  the  value  of  the  improvements. 

§  5.  Summarizing  the  general  system  of  valuation,  it  is 
necessary  to  point  out  that  there  are  two  methods  of  pro- 
cedure in  estimating  the  unimproved  value  of  the  land. 
The  one  is  to  deduct  the  value  of  the  improvements  from 
,  »  New  South  Wales,  59  Vic,  No.  15,  §  67. 


76  THE  TAXATION  OF  LAND  VALUE 

the  selling  value;  the  other  is  to  appraise  the  unimproved 
value  of  the  land  directly,  without  regard  to  the  value  of 
the  improvements.  To  what  extent  the  first,  which  is  the 
simpler  and  less  scientific,  process  of  computation,  is  prac- 
ticed, it  is  impossible  to  say.  The  second  method,  however, 
is  theoretically  the  more  correct  one,  and  the  one  to  which 
the  New  Zealand  Valuation  Department  aims  to  conform. 
The  valuer  is  there  expected  to  ascertain  separately  the 
imimproved  value,  the  value  of  the  improvements,  and  the 
capital  value  of  every  parcel  of  land.^  With  these  three 
values  before  him,  he  can  check  up  his  estimates.  If,  for 
example,  he  finds  that  the  combined  estimates  of  the  un- 
improved value  and  the  value  of  the  improvements  do  not 
equal  the  estimated  selling  or  capital  value,  he  must  re- 
adjust those  values,  bearing  in  mind  that  the  value  of  the 
improvements  is  the  difference  between  the  selling  and  the 
unimproved  values  of  the  parcel.  In  this  way  there  is  more 
prospect  of  attaining  an  accurate  valuation  than  by  the 
first  method  referred  to  above. 

There  appears  also  in  the  Queensland  statute  ^  a  sug- 
gestion that  the  second  method  may  be  there  employed. 
The  clause  reads;  "Except  as  hereinafter  otherwise  pro- 
vided the  value  of  any  ratable  land  shall  be  estimated  at 
the  fair  average  value  of  unimproved  land  of  the  same  quality 
held  in  fee-simple  in  the  same  neighborhood."  Elsewhere, 
also,  there  is  a  recognition  that  the  unimproved  value  of 
any  piece  of  land  is  related  to  the  value  of  the  other  land 
in  the  community.  "It  is,  however,  assumed,"  says  the 
federal  Commissioner  of  Land  Tax,  Mr.  McKay,'  "that 
the  property  under  valuation  has  its  present  day  environ- 
ment and  is  subject  to  all  communal  influences  that  affect 
value.   Whatever  is  due  to  such  communal  influence  is  tax- 

1  New  Zealand  Official  Year  Book  (1913),  p.  846.  The  valuer  is  expected 
to  regard  each  piece  of  land  "as  if  it  alone  had  not  been  improved  at  the 
date  of  the  valuation." 

*  Queensland,  2  Edw.  VII,  No.  19,  §  195.  (Italics  mine.) 

•  First  Annual  Report  of  the  Commissioner,  etc.,  p.  14.   (Italics  mine.) 


LAND  TAXES  IN  AUSTRALASIA  77 

able  as  part  of  the  unimproved  value."  And  yet,  in  spite  of 
this  recognition  of  "community  value,"  no  "cadastral" 
system  of  scientific  valuation  based  thereon  has  been 
developed  in  Australasia  such  as  is  beginning  to  be  em- 
ployed in  this  country.^ 

To  what  degree  of  accuracy  the  valuers  attain  under 
the  system  of  valuation  in  Australasia  it  is  difficult  to  say. 
Much  depends  upon  the  efficiency  of  the  administration. 
According  to  the  official  reports  ^  the  system  of  valuation 
in  New  Zealand  is  said  to  be  efficient.  Several  factors,  as 
already  noted,  have  operated  to  produce  this  result.  First, 
the  assessments  are  used  not  only  by  the  government  in 
granting  loans,  but  by  "trustees,  executors,  private  lend- 
ers and  purchasers,"  and  for  other  purposes.  Second,  the 
government  retains  the  option  of  purchase  in  case  of  dis- 
agreement between  the  owner's  and  the  commissioner's 
estimated  value.  Third,  the  assessment  roll  is  used  for 
local  purposes  and  is  open  to  the  owners  for  inspection  and 
comparison  of  one  another's  valuations.  Fourth,  the  valu- 
ing department  is  centralized  and  the  officials  are  respon- 
sible to  the  department,  not  to  party  constituents. 

Nevertheless,  that  the  system  in  South  Austraha  does 
not  attain  accurate  returns  is  attested  by  the  following 
statement  from  the  report  of  the  First  Commissioner  of 
Taxation.'  "There  has  throughout  been  no  straining  after 
high  values.  Valuators  have  been  instructed  to  give  fair 
and  uniform  values,  founded  as  far  as  possible  on  sales, 
and  on  values  generally  recognized  in  each  particular 
locality.  This  is  the  principle  that  has  been  aimed  at,  and 

*  Cf.  infra,  chapter  vn,  §  12. 

»  Cf.  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  pp.  146-47. 
Also  pp.  78-79.  "  Although  there  has  been  a  considerable  rise  in  assess- 
ments generally  since  the  valuing  department  has  been  fully  organized, 
there  does  not  appear  to  be  any  widespread  discontent  with,  or  distrust 
of  it.  The  Treasury  and  the  municipal  bodies  have  received  better 
returns,  but  there  is  no  reason  to  suppose  that  the  property  owners  have 
been  oppressively  assessed." 

»  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  129. 


78  THE  TAXATION  OF  LAND  VALUE 

the  fact  that  the  assessment  for  the  city  of  Adelaide  comes 
out  at  £9,558,452,  being  £5,467,548  or  more  than  one-third 
less  than  the  latest  Parliamentary  estimate  for  it,  may,  I 
think,  be  taken  as  some  evidence  that,  at  all  events,  ex- 
treme values  have  not  been  resorted  to."  The  Commis- 
sioner of  the  Commonwealth  Tax  reports  as  follows  con- 
cerning the  first  valuation  made:  ^  "The  fact  remains 
that  some  of  the  shire  unimproved  values  are,  in  the  opin- 
ion of  the  departmental  valuers,  far  below  the  actual  sale 
value  of  the  land,  which  is  the  true  taxing  value.  The  land- 
owning class  is  often  directly  represented  on  the  shire  coun- 
cil, and  there  is  a  tendency  on  the  part  of  bodies  so  consti- 
tuted to  limit  the  values,  and  the  consequent  tax,  for  local 
government  purposes."  The  evidence  is  general  that  the 
system  of  land  valuation,  taking  Australasia  as  a  whole, 
lacks  scientific  accuracy  and  expertness,  although  uni- 
formity in  valuation,  and  therefore  a  certain  degree  of 
efficiency,  is  there  attained. 

§  6.  The  consideration  of  the  administration  of  the  land 
tax  raises  the  question  of  its  fiscal  importance.  It  is  a 
well-known  paradox  that  an  evident  incompatibility  exists 
between  the  fiscal  and  social  interests  when  taxation  is 
employed  to  check  or  prevent  a  social  ill.  For  example, 
the  federal  tax  of  ten  per  cent  on  note  issues  of  state  banks 
is  prohibitive  and  wholly  unproductive  as  a  source  of 
revenue.  Or,  a  protective  tariff,  if  wholly  effective,  would 
yield  a  comparatively  trifling  revenue.  So  in  judging  of 
the  efficacy  of  the  land  taxes  from  the  revenue  receipts  we 
must  bear  in  mind  the  purpose  of  the  taxes.  ^  According  to 
the  analysis  in  the  preceding  chapter,  the  purpose  of  the 
state  and  federal  taxes  was  not  the  same  as  that  of  the  local 
systems,  the  former  aiming  at  disintegration,  the  latter  at 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax,  etc.  (1912), 
p.  10. 

*  The  following  quotation  shows  this  incompatibility  well:  "Mr. 
Berry  declares  that  he  would  be  delighted  if  within  twelve  months  every 
large  estate  was  divided  so  that  the  tax  did  not  bring  in  a  shilling  into  the 
revenue."   The  Australasian,  April  i,  1881,  p.  432. 


LAND  TAXES  IN  AUSTRALASIA 


79 


revenue.  This  fact  must  be  borne  in  mind  in  treating  of 
the  fiscal  aspect  of  the  taxes. 

It  may  well  be,  however,  that  a  tax  may  prove  at  one 
and  the  same  time  a  productive  source  of  revenue  and  an 
agent  of  social  reform.  Thus,  the  Australasian  graduated 
land  tax  may  not  have  disintegrated  the  large  estates,  nor 
the  absentee  tax  prevented  absenteeism;  nevertheless,  it 
may  have  acted  as  a  discouragement  to  both  and  have 
made  the  large  estates  bear  a  heavier  burden  so  long  as 
they  endured.  At  the  same  time  the  tax  may  have  estab- 
lished itself  as  a  permanent  part  of  the  fiscal  system.  In 
the  following  sections,  then,  we  shall  attempt  to  discover 
the  expediency  of  the  tax  on  unimproved  value  as  a  fiscal 
measure. 

§  7.  Tables  I  and  II  below  show  the  revenue  yielded 
over  a  period  of  sixteen  years  by  the  land  taxes  levied  for 


TABLE  I.    RECEIPTS  FROM  THE  DOMINION  LAND 
TAX  IN  NEW  ZEALAND  1 


Per  cent  of 

Year 

Ordinary 

Graduated 

Absentee 

Total 

total  land 

tax 

tax 

tax 

receipts 

tax  to  total 

tax  revenue 

1897-98... 

£193,348 

£73,353 

£586 

£267,287 

1898-99... 

231,871 

83,220 

962 

298,053 

1899-00... 

215,955 

76,683 

990 

293,628 

10.16 

1900-01 . . . 

222,353 

71,406 

825 

294,584 

9.68 

1901-02... 

233,545 

78,214 

1,076 

312,835 

10.05 

1902-03... 

217,307 

77,832 

923 

296,062 

9.03 

1903-04 . . . 

232.774 

98,681 

3,536 

334,991 

9.18 

1904-05... 

254.727 

94,703 

3.425 

352,855 

9.40 

1905-06... 

277.144 

104,949 

8.663 

385,756 

10.04 

1906-07... 

317.176 

125,929 

4,237 

447,342 

10.49 

1907-08... 

346.166 

186,000 

5,680 

537,846 

11.58 

190a-09... 

889.844 

209,248 

5,809 

604,901 

13.82 

1909-10... 

417,668 

220,044 

4,558 

642,270 

15.13 

1910-11... 

416,426 

209,493 

2,804 

628,723 

12.99 

1911-12... 

439,398 

205,114 

2,503 

647,015 

12.21 

1912-13... 

475.281 

251,275 

2,080 

728,636 

13. 

*  Compiled  from  the  following  sources:  Papers  Bearing  on  Land  Taxes, 
etc.  (Cd.  4750),  1909,  p.  74;  New  Zealand  Official  Year  Book  (1909), 


THE  TAXATION  OF  LAND  VALUE 


TABLE  11.  REVENUE  FROM  THE  STATE  LAND 
TAXES  IN  THE  AUSTRALIAN  STATES  ^ 


Year 

N.S.  Wales 

S.  Australia 

W.  Australia 

Victoria* 

Tasmania* 

1897-98... 

£364,181 

£81,508 

£115,451 

£37,226 

1898-99... 

253,901 

77,622 

108,745 

37,577 

1899-00... 

286,227 

78,404 

108,722 

38,866 

1900-01 . . . 

288,369 

79,908 

97,948 

38,915 

1901-02... 

301,981 

76,350 

97,862 

39,337 

1902-03... 

314,104 

105,024 

92,867 

41,862 

1903-04... 

322,246 

77,369 

106,445 

50,881 

1904-05... 

332,530 

115,032 

97,840 

54,151 

1905-06... 

336,785 

94,374 

103,556 

54,776 

1906-07... 

345,497 

90,200 

92,438 

56,065 

1907-08... 

178,889 

93,762 

£11,140 

89,496 

57,742 

1908-09... 

80,794 

92,158 

33,120 

85,559 

69,651 

1909-10... 

9,066 

94,126 

34,344 

114,357 

79,021 

1910-11... 

7,438 

135,614 

87,871 

210,640 

64,932 

1911-12... 

6,479 

118,725 

45,166 

293,823 

81,234 

*  The  land  tax  in  Victoria  and  Tasmania  was  levied  on  the  improved  value  until 
WlO-11. 

state  purposes.  In  Table  I,  we  note  an  increase,  during 
the  interval,  1897-1913,  of  about  145  per  cent  in  the  ordi- 
nary tax,  of  about  242  per  cent  in  the  graduated  tax,  and 
of  about  255  per  cent  in  the  absentee  tax,  while  the  total 
receipts  from  all  three  taxes  in  New  Zealand  show  an  in- 
crease of  about  172  per  cent.  In  considering  the  increase 
in  the  receipts  of  the  ordinary  tax,  which  of  course  consti- 
tutes the  most  substantial  portion  of  the  land  tax,  it  is 
significant  to  note  that  the  appreciation  in  the  unimproved 
value  of  the  land  upon  which  the  tax  is  levied  was  during 
the  same  period  over  152  per  cent.^   This  shows  a  rough 

p.  691;  New  Zealand  Official  Year  Book  (1912  and  1913);  Statistics  of  the 
Dominion  of  New  Zealand  (1910). 

*  Compiled  from  the  following  sources :  Official  Year  Book  of  the  Common- 
toealth  of  Australia,  vol.  i  (1901-07),  and  vol.  v  (1901-11) ;  Coghlan,  Statis- 
tical Account  of  Australia  and  New  Zealand  (1903-04);  Victorian  Year 
Books;  Statistical  Register  of  the  State  of  South  Australia,  for  years  1903-1 1 . 

»  The  unimproved  value  was,  in  1897,  £84,401.244;  in  1913,  £212,- 
068,468.  New  Zealand  Offi/dal  Year  Book  (1913),  p.  859. 


LAND  TAXES  IN  AUSTRALASIA  81 

correspondence  between  receipts  and  the  value  of  the  land, 
the  rate  of  tax  having  remained  the  same.  Again,  keeping 
the  changes  in  the  rate  of  the  graduated  and  absentee  taxes 
in  mind,  the  rise  in  yield  of  the  graduated  tax,  in  1903-04, 
and  from  1907-08  on  (see  column  3),  is  noteworthy,  for  in 
those  years  the  tax  rate  was  increased.  A  comparison  of 
the  total  receipts  since  1907-08  ^  (colunm  5)  makes  clear 
the  heavy  burden  which  now  falls  upon  the  large  holders 
and  which  they  prefer  to  bear  rather  than  to  dispose  of 
their  estates.  On  the  whole  the  receipts  from  the  graduated 
and  absentee  taxes  show  great  fluctuations  and  are  imlike 
the  more  steady  increase  of  the  ordinary  tax.  The  fact  that 
the  revenue  from  the  graduated  tax  has  increased  may  be 
regarded  as  proof  of  the  ineflScacy  of  the  tax  to  disintegrate 
the  large  holdings.  But  the  effect  on  absenteeism,  judging 
from  the  receipts  from  absentees,  is  significant.  Since 
1910,  when  the  absentee  rate  of  tax  was  increased  from 
twenty  per  cent  to  fifty  per  cent,  the  receipts  as  shown 
in  colunm  4  have  been  growing  less.  This  may  signify 
that  the  number  of  absentee  owners  of  the  very  large  es- 
tates, at  any  rate,  is  decreasing  as  a  result  of  the  heavy 
burden  of  the  discriminatory  tax. 

From  the  last  column  of  the  table,  showing  the  propor- 
tion that  the  total  receipts  of  the  land  tax  bear  to  the 
total  tax  revenue  of  the  central  government,  it  is  clear 
that  the  land  tax  constitutes  but  a  small  proportion  of  the 
tax  receipts,  and  a  very  much  less  proportion  of  the  whole 
budget.'^  The  slight  variations  in  the  proportion  which 
on  the  whole  tends  to  increase  show,  however,  that  the 
land  tax  has  become  an  integral  and  permanent  part  of 
the  fiscal  system.  Compared  with  the  yield  of  the  income 
tax,  the  land  tax  is,  indeed,  more  productive;  for  example, 

^  The  great  increase  in  receipts  for  1909-10  can  be  explained  only  by 
the  fact  that  the  additional  rate  came  into  effect  on  March  30,  1910, 
before  the  fiscal  year  had  ended. 

*  The  revenue  derived  from  taxation  was,  in  1911,  £4,837,322,  the  total 
revenue  £10,297,273.   The  New  Zealand  Official  Year  Book  (1912),  p.  763. 


82  THE  TAXATION  OF  LAND  VALUE 

in  1908-09,  the  revenue  of  the  land  tax  was  almost  dou- 
ble that  of  the  income  tax,  £604,901,  as  compared  with 
£321,044.1 

Turning  to  Table  II  we  fail  to  note  the  same  steady  in- 
creases in  receipts  in  some  of  the  states  as  were  found  in 
New  Zealand.  The  fluctuation  in  receipts  shows  in  part  the 
effect  of  the  revisions  in  the  Acts.  For  example,  the  fall  in 
yield  in  New  South  Wales  since  1907-08  is  obviously  attrib- 
utable to  the  suspension  of  the  tax  in  favor  of  the  local 
governments.  With  regard  to  the  great  increases  in  revenue 
in  South  Australia,  in  1902-03  and  1904-05,  it  will  be  re- 
called that  an  additional  rate  was  levied  in  those  years. 
The  explanation  of  the  enormous  increase  in  1910-11  over 
all  previous  years  is  that  there  was  a  new  assessment  in 
1910  and  the  ratable  value  of  the  land  had  increased 
from  £68,214,887  in  1910  to  £75,943,584  in  1911.2  Land 
"booms"  and  the  subsequent  depressions  in  value  may 
be  responsible  for  some  of  the  fluctuations  noticeable,  e.g., 
the  proceeds  for  1898-99  show  a  decided  decrease  in  land 
value  in  New  South  Wales,  South  Australia,  and  Victoria. 
Compared  with  the  total  tax  revenue  for  the  year  1906-07, 
the  last  year  before  the  suspension  of  the  tax,  the  land 
tax  in  New  South  Wales  constituted  about  twenty-five 
per  cent  of  the  total  tax  receipts,  in  South  Australia  about 
twenty-two  per  cent,  and  in  Western  Australia  (1910-11) 
about  eleven  per  cent.  When  we  consider,  however,  that 
all  tax  receipts  form  a  very  small  percentage  of  the  total 
revenue,  7.42  per  cent  in  New  South  Wales,  13.05  per  cent 
in  South  Australia,  and  only  8.45  per  cent  in  Western  Aus- 
tralia,' the  insignificance  of  the  land  tax,  fiscally  consid- 
ered, becomes  obvious. 

The  revenue  receipts  shown  in  the  table  for  Victoria  and 


»  The  New  Zealand  Official  Year  Book  (1909),  p.  691. 

*  Offixdal  Year  Book  of  South  Atistralia  (1913),  p.  168.  Statistical  Regis- 
ter of  the  State  of  South  Australia  (1911),  pt.  vi. 

•  Qfficicd  Year  Book  of  the  Commonwealth  of  Australia  (1901-11),  p.  815. 


LAND  TAXES  IN  AUSTRALASIA  83 

Tasmania  until  1910-11  represent  the  yield  of  the  realty 
tax,  not  of  the  tax  on  unimproved  value.  The  change  to 
the  latter  mode  of  taxation  has  brought  some  interesting 
variations  in  receipts.  It  is  noteworthy  that  in  1910-11, 
the  first  year  of  the  tax  on  land  value  in  Victoria,  the 
revenue  nearly  doubled,  and  that  in  the  last  year  shown 
in  the  table,  the  increase  over  the  preceding  year  was  more 
than  39  per  cent.  This  is  to  be  accounted  for  by  the  pro- 
vision abolishing  the  liberal  exemptions  formerly  allowed. 
In  Tasmania,  the  exemption  of  improvements,  formerly 
taxable,  caused  a  diminution  in  the  taxable  base,  reduc- 
ing the  yield  of  the  tax  in  spite  of  the  increase  in  the  rates 
of  the  graduated  scale.  But,  the  decrease  in  receipts  was 
slight  in  view  of  the  fact  that  a  special  super-tax  had 
been  levied  in  1909-10.^  The  following  year,  however,  the 
deficit  was  more  than  made  up,  as  will  be  noted.  In  both 
states  the  change  to  the  new  system  has  been  fiscally  ad- 
vantageous. As  regards  the  tax  in  Western  Australia,  its 
steadily  increasing  yield  is  noteworthy,  but  as  has  been 
shown,  it  constitutes  a  very  small  percentage  of  the  whole 
budgetary  revenue. 

§  8.  From  the  fiscal  standpoint  the  federal  land  tax  is 
as  unimportant  as  the  state  taxes.  Since  its  levy  the  tax 
has  yielded  the  following  revenue  i^ 

1910-11 £1,404,969 

1911-12 1,445,260 

1912-13 1,385,024 

Comparing  these  receipts  with  the  total  revenue  re- 
ceipts of  the  Commonwealth,  we  find  that  the  land  tax 
constituted  (1911-12)  about  six  per  cent  of  the  whole. 

The  following  report  of  the  particulars  of  the  land-tax 
assessment  is  for  our  purpose  very  significant:' 

»  Statistics  of  the  State  of  Tasmania  (1913-14),  p.  332. 

*  Commonwealth  of  Australia,  Official  Statistics,  Monthly  Bulletin  No. 
12  (December,  1912),  p.  31;  Bulletin  No.  24  (1913),  p.  40. 

'  Official  Statistics,  Commonwealth  of  Australia,  Monthly  Bulletin 
No.  12  (December,  1912),  p.  34;  Finance  Bulletin.  No.  5  (Summary 
1901-11),  p.  13. 


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86  THE  TAXATION  OF  LAND  VALUE 

It  will  be  noted  that  the  tax  charged  on  rural  land  was 
more  than  twice  the  amount  collected  on  urban  land.  It 
is  in  the  country,  of  course,  where  the  large  holdings  exist. 
There  were  in  all  13,387  ^  taxpayers  and  of  these  about 
one-sixth  were  absentees.  The  area  owned  by  these  13,- 
387  persons  was  72,528,271  acres,  giving  an  average  of 
5418  acres  to  the  person.  There  were  146  owners,  the  un- 
improved value  of  whose  estates  taken  individually  ex- 
ceeded £100,000.  Of  the  total  revenue,  it  will  be  noted. 
New  South  Wales  paid  more  than  half,  50.8  per  cent,  the 
percentage  of  taxable  area  in  that  state  to  the  whole  tax- 
able area  being  58.4,^  Although  New  South  Wales  has  the 
largest  population  of  all  the  Austrahan  states,  its  terri- 
tory is  about  one-half  that  of  Queensland  and  about  one- 
third  that  of  Western  Australia,  showing  that  the  con- 
centration of  land  in  the  hands  of  comparatively  few  is 
greater  in  New  South  Wales  than  elsewhere  in  the  Com- 
monwealth. The  conditions  of  tenure  in  relation  to  the 
land-tax  assessment  are  shown  in  the  accompanying  table 
on  page  87. 

The  average  rate  of  tax  was  2.92<i.  in  the  pound  (not 
quite  one  and  one-fourth  per  cent) ;  and  it  will  be  recalled 
that  all  resident  owners  were  allowed  an  exemption  of 
£5000.  Considering  that  the  total  number  of  taxpayers 
was  about  three-tenths  per  cent  of  the  entire  population 
of  the  Australian  Commonwealth,  the  discriminatory 
character  of  the  tax  becomes  apparent. 

A  very  important  consideration  in  judging  the  expe- 
diency of  a  tax  is  the  cost  of  collection  and  administration. 
It  is  interesting  to  note,  therefore,  that  the  cost  of  collec- 
tion of  the  Commonwealth  land  tax,  the  first  year  of  its 
operation,  was  one  and  one-fourth  per  cent  of  the  revenue 
collected;  while  the  entire  cost  of  its  administration,  much 

*  See  footnote  to  table,  p.  85. 

'  Monthly  Summary  of  Australian  Statistics,  Bulletin  No.  12  (December, 
1912),  pp.  34-35. 


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88  THE  TAXATION  OF  LAND  VALUE 

of  which  expenditure  will  of  course  never  recur,  was  three 
and  one-half  per  cent.^  When  we  consider  the  vast  extent 
of  territory  under  the  jurisdiction  of  the  Commonwealth 
Land  OflBce,  this  amount  is,  indeed,  very  trifling.  In  New 
Zealand,  for  the  year  1908-09,  the  cost  of  valuation  and 
collection  of  the  Dominion  land  tax  was  3.82  per  cent  of 
the  total  yield;  while  the  administration  and  assessment 
of  the  income  tax  was  2.05  per  cent.^  It  will  be  remem- 
bered in  this  connection  that  the  yield  of  the  land  tax  was 
nearly  double  that  of  the  income  tax,  while  the  number 
of  taxpayers  of  the  land  tax  was  nearly  three  times  the 
number  of  those  who  were  liable  to  income  tax.' 

§  9.  As  will  be  surmised,  the  fiscal  problems  presented 
by  the  system  of  rating  on  unimproved  value  in  the  local 
bodies  in  Australasia  are  unlike  those  dealt  with  above. 
As  we  have  shown,  the  state  governments  depend  upon 
other  sources  of  revenue  besides  direct  taxation;  the  local 
divisions,  on  the  other  hand,  axe  in  the  main  dependent 
for  approximately  the  entire  budget  upon  the  rates  levied. 
When,  therefore,  a  community  adopts  a  single  tax  on  the 
unimproved  value  of  the  land  for  local  revenue,  the  ques- 
tions which  at  once  arise  are:  Is  the  tax  a  sufficient  source 
of  revenue?  Is  it  convenient,  certain,  elastic? 

In  order  to  be  able  to  compare  the  working  of  the  Single 
Tax  on  unimproved  value  with  the  fiscal  systems  in  the 
other  local  authorities,  some  important  data  relative  to 
the  fiscal  policy  in  the  several  states  are  presented  in  the 
following  table:  * 

The  chief  difference  to  be  noted  in  the  above  systems  of 

*  First  Annual  Report  of  the  Commissioner  of  the  Land  Tax  of  the  Com- 
monwealth of  Australia  (1912),  p.  25. 

2  The  New  Zealand  Official  Year  Book  (1909),  p.  691. 
»  There  were  30,855  payers  of  knd  tax,  and  10,839  of  income  tax  in 
1908-09.  Ibid.  (1913),  p.  783. 

*  Official  Statistics,  Commonwealth  of  Australia,  Finance  Bulletin 
No.  4  (1901-10),  p.  29. 


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90  THE  TAXATION  OF  LAND  VALUE 

local  finance  is  in  respect  to  the  taxable  value  upon  which 
rates  are  levied.  New  South  Wales  and  Queensland  rating 
on  the  unimproved,  the  other  four  states  ^  on  the  capital 
or  annual  value  of  both  land  and  improvements.  New 
South  Wales  has  the  largest  budget,  Queensland  coming 
third.  It  will  be  observed  that  the  government  grant  to 
Queensland  is  very  small,  and  while  that  to  New  South 
Wales  is  yet  the  largest  endowment,  there  is  reason  to  be- 
lieve that  the  tendency  will  be  to  reduce  the  grants  when 
conditions  permit.^  The  "other  sources"  of  revenue  are 
from  pubUc  works,  Ucenses,  fees,  rents,  etc.  But  in  New 
South  Wales  and  in  Queensland,  besides  the  rates  and  en- 
dowment, the  only  additional  revenue  comes  from  pubUc 
works. 

Turning  to  the  consideration  of  the  local  revenue  systems 
of  the  particular  states,  we  present  in  the  following  table 
some  important  data  bearing  on  the  source  and  yield  of  the 
local  tax  in  Queensland.  The  elasticity  of  yield  is  very 
significant.  While  the  value  of  the  property  had  in- 
creased about  19.5  per  cent,  from  1903  to  1911,  the  revenue 
had  increased  92.3  per  cent  dming  the  same  period.  It 
is  interesting  to  note  that  the  revenue  of  the  shires  had 
increased  more  rapidly  than  that  of  the  urban  communi- 
ties. In  1910,  the  prevailing  general  rate  in  the  cities  and 
towns  was  Sd.  which  was  the  highest  rate  levied.  The 
lowest  was  li  d.  In  the  shires  the  general  rate  averaged 
much  less  than  3d.  in  the  pound,  the  maximum  levied, 
while  the  minimum  rate  was  as  low  as  ^d.^  The  system  of 
"differential  rating"  whereby  each  minor  civic  division, 

^  In  Victoria  rating  on  the  unimproved  value  was  made  optional  in 
1914. 

*  Cf.  supra,  chapter  n,  pp.  29,  55.  Under  the  provisions  of  the  Shires 
Bill  (Act  No.  33,  1905)  the  endowment  to  the  shires  for  the  first  three 
years  was  on  such  a  scale  that  no  shire  would  need  levy  a  higher  rate  than 
Id.  in  the  poxmd.  Cf.  Papers  Relative  to  the  Working  of  Taxation,  etc.  (Cd. 
3761),  1907,  p.  10. 

»  Statistics  of  the  State  of  Queensland  (1910),  pt.  vi. 


LAND  TAXES  IN  AUSTRALASIA 


91 


TABLE  SHOWING  THE  RECEIPTS  FROM  RATES  AND  THE 
VALUE  OF  RATABLE  LAND  IN  QUEENSLAND  FROM 
1903  TO  1911 1 


Yeax 


1903 
1904 
1905 
1906 
1907 
1908 
1909 
1910 
1911 
1912 


Capital  value 

of  unim- 
proved land 


£44,149.974 
43,651,241 
42,358,173 
43,178,545 
43,817,870 
45,025,085 
47,314,811 
49,797,830 
52,788,079 
64,991,920 


Revenue  from  rales,  general  and 
others 


Cities  and 
towns 


£191,975 
216,133 
216,283 
217,168 
226,948 
233,622 
247,433 
278,300 

357,550 


Shires 


£118,127 
160,759 
161,198 
170.617 
187,397 
202,722 
222,536 
253,398 

342,481 


Total 


£340,102 
376,892 
377,481 
387,785 
414,345 
436,344 
469,969 
631,698 
654,125 
700.031 


e.g.,  a  ward,  or  division  of  a  shire,  fixes  its  own  rate  of  tax,^ 
seems  to  solve  a  serious  objection  to  the  rating  on  unim- 
proved value.'  If  the  same  rate  were  charged  on  town  as 
on  rural  land,  as  the  value  of  land  in  the  country  is  gener- 
ally more  than  that  of  the  improvements,  it  would  impose 
a  greater  hardship  upon  the  rural  community  and  would 
violate  the  principle  of  "benefit,"  since  the  expenditure  of 
a  town  is  generally  greater  than  in  the  country.  Alto- 
gether, the  expediency  of  a  system  which  has  remained 
practically  without  change  in  legislation  since  its  incep- 
tion in  1890,  which  is  in  operation  in  all  the  local  bodies, 
which  is  practically  the  sole  source  of  local  revenue,  which 
is  not  oppressive,  and  which  fulfills  the  criteria  of  elastic- 

^  Compiled  from  data  in  the  Official  Year  Books  of  the  Commxmwealth 
of  Australia  (1901-07,  p.  843,  and  1901-11,  p.  1017);  Official  Statistics, 
Finance  Bulletin  5  (1901-11),  p.  28;  Statistics  of  the  State  of  Queensland, 
1910,  pt.  VI ;  A.B.C.  of  Queensland  Statistics  (1913). 

*  Cf.  Statistics  of  the  State  of  Queensland  (1910),  pt.  VI. 

•  Papers  Relative  to  the  Working  of  Taxation  on  tlie  Unimproved  Value 
of  Land  in  Queensland  (Cd.  3890),  1908,  p.  16. 


92 


THE  TAXATION  OF  LAND  VALUE 


ity,  economy,  and  certainty,  seems  to  be  established  for 
the  local  governments  of  Queensland. 

Compared  with  the  Queensland  system,  rating  on  unim- 
proved value  in  New  South  Wales  is  still  in  the  experimen- 
tal stage,  not  because  there  is  any  prospect  of  change  to  the 
former  system,  but  because  the  results  are  not  yet  conclu- 
sive. Nevertheless,  the  general  tendency  is  illustrated  by 
Sydney.  Until  1908  rating  was  on  annual  value;  in  that 
year  rating  on  unimproved  land  value  was  made  optional 
with  the  city  council.  The  question  was  made  a  party  issue, 
until  on  April  30,  1916,  the  Sydney  city  council  voted  in 
favor  of  exempting  all  improvements  from  taxation.^  The 
efficiency  of  the  present  system  of  local  rating  as  compared 

GENERAL  RATES  COLLECTED  IN  THE  LOCAL  BODIES 
OF  NEW  SOUTH  WALES  ^ 


Year 


1907 
1008 

1909 
1910 
1911 
1912 


Shires 


OS 


£287,635 
382,336 

374.540 
421,596 
463,501 
517.025 


ft. 


53.7 
60.9 

52.5 
53.0 
52.3 
51.7 


Municipalities 
(Sydney  excepted) 


5 


£544,339 
558.811 

573,600 

642,630 

720.419 


r 


77.4 
79.3 

77.5 

78.8 

78.2 


Sydney  * 


£202,272  ) 
78,723  ) 

206,461  ) 
83,569  f 

221,450  ) 
98,183  ( 

226,688  ) 

100,267  ) 


78.0 
80.6 
77.6 
76.0 


*  In  1912  rating  in  Sydney  was  still  mostly  on  the  annual  value.  Only  the  required  rate 
of  Id.  (see  supra,  p.  55)  was  levied  on  the  unimproved  value.  The  upper  figure  in  the 
table  represents  the  amount  raised  on  annual  value,  the  lower  that  on  the  unimproved 
value.  Official  Year  Book  of  New  SotUh  Wales  (1913),  pp.  617,  619. 


^  Land  Values,  July,  1916,  p.  46.    The  Public,  April,  28,  1911,  p.  893. 
2  Official  Year  Book  of  New  South  Wales  (1909-13);  Official  Year  Book 
of  the  Commonwealth  of  Australia  (1901-11),  p.  980. 


LAND  TAXES  m  AUSTRALASIA  03 

with  the  former  land  tax  for  state  purposes  is  shown  in  the 
table  above,  where  it  will  be  observed  that  the  receipts  from 
general  rates  in  the  shires  alone  have  exceeded,  since  1908, 
the  entire  revenue  accruing  from  the  state  land  tax.  Al- 
though attributable  in  part  to  the  elimination  of  the  mini- 
mum exemption  of  £240,  the  great  increase  in  yield  shows 
the  possibilities  of  the  system  and  the  advantages  of  the 
local  as  compared  with  the  state  administration  of  the 
tax. 

It  will  be  recalled  that  the  receipts  do  not  represent  the 
full  amount  collected  from  the  rates  on  unimproved  value, 
for  special,  local  and  loan  rates  and,  in  the  case  of  munici- 
palities, the  additional  general  rates  may  be  levied  on  the 
unimproved  value  at  the  option  of  the  council  subject  to 
a  poll  vote  of  the  ratepayers.  In  connection  with  the  in- 
crease in  the  yield  of  the  tax  in  all  the  local  bodies  it  is 
interesting  to  observe  the  increase  in  the  value  of  the 
ratable  land  as  shown  in  the  following  data:  ^ 

UNIMPROVED  VALUE  OF  RATABLE  LAND  IN  NEW 
SOUTH  WALES 


Year 

Municipalities 

Shires 

1909 

£63,255,186 
63,529.322 
69.844,477 
72,276,447 

£83,464,446 

1910 

89,936,000 

1911 

94,190,000 

1912 

97,461,000 

As  the  yield  of  revenue  in  the  shires  has  increased  some- 
what more  rapidly  than  in  the  municipalities,  so  has  the 
value  of  the  land.  It  will  be  noted  that  the  yield  in  the 
municipalities  exceeds  greatly  that  in  the  shires  although 
the  value  of  the  land  in  the  latter  communities  exceeds  that 
in  the  former.  The  explanation  is  to  be  found  in  the  fact 
that  the  rate  of  tax  in  the  municipalities  is  much  higher 

»  Official  Year  Book  of  New  South  Wales  (1911),  p.  723;  (1913),  p.  622. 


94 


THE  TAXATION  OF  LAND  VALUE 


than  in  the  shires,  the  latter  relying  more  upon  the  en- 
dowment from  the  state  government  to  supplement  the 
budgetary  requirements.  The  endowments  are  fixed  every 
third  year,  the  amount  depending  upon  various  criteria,  as 
the  size  of  the  shire,  the  revenue  accruing  from  a  Id.  rate, 
the  necessary  expenditure,  the  extent  of  roads  and  other 
public  works,  ^  etc.  The  endowments  fixed  for  the  trien- 
nium,  1910-12,  were  based  on  the  general  rates  collected 
in  the  shires  in  the  preceding  years.  They  are  as  follows:  * 


1st  class 

27  shires 

No  endowment 

1st    " 

41      " 

Up  to  105.  in  the  pound  on  General  Rate 

2d     " 

10     " 

"     "   155.  "     "         "         " 

8d     " 

9      « 

"    "  205.  "    "       

4th    " 

7      " 

"    "  255.  "    "       "       • 

6th    " 

14      " 

"    "  305. " 

6th    " 

26      " 

Not  less  than  405.  in  the  pound  on  General 
Rate 

Compared  with  the  government  endowments  to  the 
municipalities  (1909)  of  £6953,  the  shires  received  £261,- 
029  or  36.4  per  cent  of  the  total  revenue.  The  rates  of  tax 
levied  in  1910  in  the  shires  are  shown  below:  — 


General  rate  in  the  pound 

No.  of  shires 

Unimproved  value  of  land 

id. 

d. 

d. 
Id. 

IK 
lid. 
i|5. 

2<i. 

1 
2 
4 

76 

2 
23 
20 

7 

£1,472,826 
1,691,054 
4,626,443 

54,027,624 
696,157 

13,109,370 

10,322,122 
3,990,316 

1S4 

£89,935,912 

Besides  these  general  rates,  local  (special  assessment) 
rates  were  levied,  the  scale  ranging  from  id.  to  2rf.  Of  the 

»  Official  Year  Book  of  New  South  Wales  (1909-10),  p.  601. 
*  Ibid.  (1911),  pp.  737-38. 


LAND  TAXES  IN  AUSTRALASIA  05 

nineteen  cases  of  local  rates  in  the  shires  only  one  was  levied 
on  the  improved  value;  the  others  were  on  the  unimproved 
value. 

In  New  Zealand,  of  the  total  revenue  from  rates  col- 
lected by  the  local  authorities,  amounting,  in  1907-08,  to 
£1,356,257,  thirty  per  cent  was  levied  on  unimproved 
value.  ^  In  1910  the  proportion  was  thirty-three  percent.* 
In  considering  these  percentages  it  must  be  remembered 
that  at  least  one-third  of  the  local  bodies  now  rate  on 
unimproved  value.' 

In  this  section  the  productiveness  and  elasticity  of  the 
tax  on  unimproved  value  for  local  purposes  have  been 
shown.  The  convenience  and  certainty  of  land  taxes  in 
general  are  too  well  known  to  need  discussion.  In  respect 
to  the  taxes  in  the  local  governments  of  Queensland,  New 
South  Wales,  and  New  Zealand,  the  general  satisfaction 
with  the  system  demonstrates  the  fiscal  adequacy,  con- 
venience, certainty,  and  elasticity  of  the  land  tax. 

§  10.  To  sum  up  the  effects  and  working  of  the  different 
land  taxes  from  the  fiscal  standpoint:  — 

(1)  There  are  three  principal  tax  jurisdictions  in  Aus- 
tralasia, and  the  same  land  is  in  some  of  the  colonies  sub- 
ject to  all  three  levies.  There  is,  therefore,  a  duplication 
of  the  administrative  machinery  involving  an  additional 
cost  of  collection. 

(2)  The  receipts  of  the  tax  levied  for  state  and  federal 
purposes  constitute  a  small  percentage  of  the  total  reve- 
nue. 

(3)  The  land  tax  is  well  established  in  the  fiscal  system 
of  the  state  and  local  governments.  By  this  is  meant  that 
for  the  most  part  the  tax  is  no  longer  a  party  measure.* 

(4)  The  cost  of  administration  and  collection  of  the  tax 
constitutes  a  very  small  proportion  of  the  revenue  collected. 

»  The  New  Zealand  Official  Year  Book  (1909),  p.  198. 

*  Ibid.  (1912),  p.  313. 

•  Supra,  chapter  n,  §  12.  *  See  supra,  §  7. 


96  THE  TAXATION  OF  LAND  VALUE 

(5)  The  tax  for  state  and  federal  purposes  is  a  design- 
edly discriminatory  charge,  falling  on  a  small  class  of 
owners. 

(6)  The  yield  of  these  discriminatory  taxes,  state  and 
federal,  fluctuates  according  (a)  as  the  rate  is  a  graduated 
one,  (6)  as  the  rate  of  tax  changes,  (c)  as  the  system  is  ef- 
fective in  its  work  of  disintegration  of  the  large  holdings. 

(7)  The  fiscal  returns  in  the  local  bodies  show  the  ade- 
quacy and  elasticity  of  the  yield  of  the  tax. 

(8)  The  rates  on  unimproved  value  form  the  chief 
source  of  local  revenue  in  Queensland  and  New  South  Wales, 
and  constitute  the  sole  tax  in  the  localities  of  the  former 
state.  ^ 

(9)  However  adversely  the  value  of  land  may  be  affected 
upon  the  introduction  of  the  tax,  the  value  of  the  land  tends 
to  rise  in  both  the  urban  and  rural  commimities,  often 
making  a  higher  rate  of  tax  unnecessary  to  meet  the  grow- 
ing budgets. 

(10)  The  local  system  fulfills  the  fiscal  requirements; 
while  the  state  and  federal  taxes  aim  to  right  a  social  ill. 
Unhke  the  latter  the  local  taxes  are  applicable  to  all  land  at 
a  uniform  rate  of  tax. 

§  11.  Knowing  the  purpose  of  the  progressive  land 
taxes  of  Australasia,  the  question  of  their  fiscal  importance 
becomes  subordinate  to  the  inquiry:  how  has  that  purpose 
succeeded?  Has  the  tax  caused  the  large  landed  estates 
to  be  broken  up? 

After  more  than  two  decades  since  the  introduction  of 
the  tax  on  unimproved  value,  Australasia  is  still  the  coun- 
try of  large  land  holdings.  Only  in  a  few  states  has  a  re- 
duction in  the  size  or  the  number  of  large  holdings  occurred. 
To  illustrate:  in  New  Zealand  the  average  area  held  by 
owners  of  10,000  acres  and  upwards  in  1889  was  30,009 

*  That  is  the  sole  tax  for  local  purposes.  The  people  of  Queensland,  of 
course,  contribute  to  the  taxes  levied  by  the  state  and  central  govern- 
ments. Moreover.the  "endowment"  comes  from  other  sources  than  the 
land  taxes. 


LAND  TAXES  IN  AUSTRALASIA 


vr 


acres;  in  1892  the  average  had  been  reduced  to  29,924; 
in  1902  to  28,312;  in  1906  to  23,061  acres;  and  in  1910  to 
20,523  acres.  The  number  of  holdings  of  10,000  acres  and 
above  has  likewise  considerably  decreased,  as  appears  from 
the  subjoined  data:  ^ 

NUMBER  OP  FREEHOLDERS  IN  NEW  ZEALAND    OWNING 
10,000  ACRES  OR  UPWARDS,   1883-1910 


188S 

1886 

1889 

1892 

1902 

1906 

1910 

247 

259 

250 

262 

216 

204 

171 

The  effect  of  the  amended  Acts  of  1903  and  1907  is  appar- 
ent. The  reduction  since  1906  shows  the  process  of  dis- 
integration. In  Victoria  similarly  the  number  of  such 
holdings  has  fallen  from  195,  in  1906,  to  175,  in  1910,  and 
to  151  in  1913.^  In  New  South  Wales,  on  the  other  hand, 
there  was  a  slight  increase  in  the  number  of  estates  cover- 
ing 10,000  or  more  acres,  from  703  to  706  in  a  decade.'  The 
same  has  occurred  in  Western  Australia,  the  large  holdings 
having  increased  from  74  to  110.*  In  addition,  when  it  is 
considered  that  the  legislation  in  the  interest  of  closer 
settlement  has  been  unremittent,  and  that  the  govern- 
ments have  exercised  their  power  to  repurchase  land,*  and 
thus  to  aid  in  the  work  of  disintegration,  the  effect  attrib- 
utable to  the  land  tax  could  have  been  but  insignificant. 

The  enactment  of  the  tax,  however,  has  often  been  ac- 
companied by  an  increased  number  of  land  transfers 

1  Pa'pers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  75;  New 
Zealand  Official  Year  Book  (1914),  pp.  567-68. 

»  Offi/nal  Year  Book  of  the  Commonwealth  of  Australia  (1901-11), 
p.  328;  Victorian  Year  Book  (1913-14),  p.  713. 

»  Official  Year  Book  of  the  Commonwealth  of  Australia  (1901-11),  p.  327. 

*  Ibid.,  p.  328. 

»  In  this  way  the  famous  Cheviot  estate  in  New  Zealand  was  sub- 
divided and  sold. 


98 


THE  TAXATION  OF  LAND  VALUE 


through  sales.  Subdivision  was  said  to  have  been  common 
in  New  Zealand  prior  to  the  Act  of  1907.^  Similarly  in 
anticipation  of  the  Commonwealth  Act  many  sales  of 
large  holdings  took  place.  Between  June  and  September, 
1910,  the  law  allowed  the  owner  the  right  to  deduct  from  the 
taxable  value  the  value  of  any  estates  about  to  be  sold.  In 
that  period  699  sales,  aggregating  £2,712,775  in  value, 
were  reported  to  the  tax  commissioner;  and  the  land  thus 
subject  to  sale  was  not  included  in  the  assessment  of 
the  remaining  land  of  these  owners.^  Then,  since  the  enact- 
ment of  the  law,  from  October  1,  1910,  to  June  30,  1911, 
the  following  sales  and  purchases  of  land  transacted  by 
payers  of  the  Commonwealth  land  tax,  were  reported  at 
the  different  land  tax  offices:' 


Sales 

Purchases 

State 

Number 

Unimproved 
value 

Number 

Unimproved 
value 

Central  Office*  and 
Victoria 

7,032 
7.134 
1,109 
2,059 
656 
298 

£7,684,221 

6,931,090 

1,027,206 

1,798,545 

391,555 

355,676 

1,601 
1,151 
166 
744 
107 
105 

£3,798,275 

New  South  Wales 

Queensland 

3,496,073 
611,328 

South  Australia 

1,135,069 

Western  Australia 

Tasmania 

121,022 
203,839 

Total 

18,288 

£18,188.293 

3,874 

£9,266,506 

*  The  Central  Office  deals  with  estates  that  iaclude  property  in  more  than  one  state. 


It  would  seem,  indeed,  that  at  the  same  time  that  sub- 
division was  taking  place  there  was  likewise  an  acquisition 

»  The  Australasian,  October  5,  1907,  p.  888. 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax  of  the  Common- 
wealth of  Australia  (1912),  p.  24. 

*  Official  Statistics,  Commonwealth  of  Australia,  Monthly  Summary, 
Bulletin  No.  14  (February,  1913),  p.  35. 


LAND  TAXES  IN  AUSTRALASIA  99 

of  new  estates  of  taxable  value.  But  it  is  reported  that  "as 
a  rule  those  who  have  relieved  themselves  of  the  tax  are 
taxpayers  subject  to  the  highest  scales,  but  the  buyers 
of  land,  as  a  rule,  are  those  subject  to  lower  rates  or 
are  wholly  exempt  from  the  tax."  *  Altogether,  however, 
allowing  for  the  deterrent  effect  of  the  tax  on  the  concen- 
tration of  large  tracts  of  land  in  the  hands  of  compara- 
tively few  owners,  the  actual  disintegration  of  large  estates, 
except  in  New  Zealand,  has  been  slight. 

§  12.  The  reasons  for  the  inadequacy  of  the  land  tax 
as  a  means  of  breaking  up  the  large  estates  are  traceable 
to  certain  provisions  in  the  legislation.  The  recognition 
of  this  by  the  state  governments  is  shown  through  the  re- 
visions which  the  Acts,  especially  in  New  Zealand,  have 
undergone.  These  amendments  will  be  discussed  under 
the  following  heads:  (1)  evasions;  (2)  rates  of  tax;  (3)  val- 
uation systems. 

(1)  The  excessive  exemptions  and  the  progressive  scales 
have  induced  evasions  to  a  greater  extent  than  is  usual 
with  taxes  on  real  property.  Among  some  common  meth- 
ods practiced  to  escape  the  burden  were  bogus  partnerships, 
one-man  companies,  false  sales  and  leases,  nominal  gifts, 
etc.^  To  form  a  fictitious  partnership  was  an  expedient, 
perfectly  legal  and  successful,  for  before  the  amended  pro- 
visions of  1907,  partners  were  assessed  separately.  Or  it 
was  a  simple  matter,  an  expedient  very  prevalent  in  New 
Zealand,  to  divide  the  estate  nominally  among  the  mem- 
bers of  the  immediate  family  to  avoid  paying  the  highest 
rate  of  tax.  Not  only  did  the  Dominion  of  New  Zealand 
incur  great  losses  through  such  evasions,  but  the  gradu- 
ated scale  weighed  less  heavily  on  the  large  owners.  Con- 
sequently, in  1907,  the  following  clauses  were  inserted  in 
the  New  Zealand  Act  to  put  a  stop  to  the  practices  men- 

*  First  Annual  Report  of  the  Commissioner  of  Land  Tax  of  the  Com- 
monwealth of  Australia  (1912),  p.  24. 

»  Papers  Bearing  on  Iiand  Taxes,  etc.  (Cd.  4750),  1909,  p.  75. 


100  THE  TAXATION  OF  LAND  VALUE 

tioned  above.  ^  Similar  provisions  have  been  incorporated 
in  the  laws  of  the  other  states:* 

1.  Life  tenants  are  liable  as  if  owners  of  fee-simple. 

2.  Lessees  are  Uable  as  if  owners  (except  lessees  of 
the  Crown,  Native,  or  exempt  land  .  .  .). 

S,  Shareholders  are  liable  as  if  owners  of  the  company's 
land  in  proportion  to  their  interest  in  the  paid-up 
capital. 

4.  Two  companies  having  practically  ^  the  same  share- 
holders are  deemed  one. 

5.  Joint  owners  are  assessed  jointly  as  if  the  whole  land 
was  owned  by  a  single  person,  and,  in  addition,  the 
joint  owners  are  liable  for  their  interests  in  the  joint 
estate  taken  in  conjunction  with  any  lands  owned  by 
them  in  severalty.  .  .  . 

6.  Persons  occupying  land  jointly  are  liable  as  if  own- 
ing jointly,  as  if  the  whole  land  was  owned  by  a 
single  person.  .  .  . 

7.  The  buyer  in  possession  is  liable,  although  convey- 
ance has  not  been  executed. 

8.  The  seller  remains  liable  until  15  per  cent  of  the  pur- 
chase money  is  paid  or  the  settlement  has  been  agreed 
upon,  except  in  case  of  agreement  of  sale  made  five 
years  before  the  passing  of  the  Act,  or  made  by  a 
seller  not  the  owner  of  more  than  £40,000  unim- 
proved value. 

*  "It  is  generally  admitted  that  the  bill  is  a  clever  piece  of  draughts- 
manship, elaborately  contrived  to  prevent  the  nominal  conveyances, 
mortgages,  trusts  and  other  devices  by  which  payment  of  the  graduated 
tax  has  been  evaded  in  the  past."  The  Australasian,  October  19,  1907, 
p.  1019. 

»  Cf.  Victoria,  1  Geo.  V,  No.  2284,  §§  38-52;  Tasmania,  2  Geo.  V,  No. 
47,  §  19. 

»  New  Zealand,  7  Edw.  VII,  No.  18,  §§  11-21.  The  Victorian  statute 
provides  that  two  companies  shall  be  deemed  one  "  if  not  less  than  three- 
fourths  of  the  paid-up  capital  of  each  is  held  by  or  on  behalf  of  the 
shareholders  in  the  other."  1  Geo.  V,  No.  2284,  §  41  (2). 


LAND  TAXES  IN  AUSTRALASIA  101 

9.  No  disposition  is  to  be  effective  so  long  as  possession 
is  retained. 

10.  Tax  payable  by  buyer  may  be  deducted  from  the 
amount  payable  by  seller.  .  .  . 

11.  Equitable  owners  are  liable  as  if  legal  owners. 

12.  Trustees  are  liable  as  if  beneiScially  entitled  to  the 
land. 

13.  Mortgagees  in  possession  of  the  land  are  liable  as  if 
lessees. 

(2)  A  second  cause  of  the  failure  of  the  tax  to  accomplish 
its  purpose  is  the  rate  of  tax,  which,  speaking  generally,  is 
too  low  to  be  effective.  The  ordinary  tax  on  unimproved 
value  for  state  purposes  ranges  from  ^d.  in  the  pound  in 
Victoria  and  South  Australia  to  Id.  (.41  per  cent)  in  New 
Zealand,  Western  Australia,  and  Tasmania.  Then,  it  will 
be  recalled  that  in  Victoria  and  Western  Australia  the  ordi- 
nary tax  is  the  only  one  charged,  that  is,  there  exists  no 
progressive  tax  in  those  states;  that  in  South  AustraUa,  the 
additional  tax  on  estates  of  over  £5000  is  only  ^d.  in  the 
pound,  a  uniform  rate;  and  that  in  Western  AustraUa  one- 
half  of  the  slight  charge  of  Id.  is  remitted  to  the  owner 
of  improved  property.  The  graduated  scale  of  rates  in 
Tasmania  on  land  exceeding  £2500  ranges  from  Ijd.  to 
9,^d.  (about  one  per  cent).  Such  rates  surely  are  not  exces- 
sive, and  thus  far  the  income  of  the  landowner  has  not 
been  touched  sufficiently  to  make  the  holding  of  his  es- 
tates unprofitable. 

In  New  Zealand,  however,  when  the  ineffectiveness  of 
the  tax  was  realized,  the  graduated  scale  was  revised  from 
time  to  time  to  tighten  the  screw,  until,  in  1907,  a  super- 
charge of  twenty-five  per  cent  of  the  new  graduated  scale 
was  added  on  all  estates  of  £40,000  or  above,  the  rates 
ranging  from  ^d.  in  the  pound  on  land  £5000  to  two  per 
cent  on  estates  of  £200,000  or  above;  since  1910,  when  the 
additional  tax  of  twenty-five  per  cent  came  into  force,  the 


102 


THE  TAXATION  OF  LAND  VALUE 


graduated  scale  has  ranged  from  -^d.  on  land  £5000  to 
about  two  and  a  half  per  cent  on  the  largest  estates.  The 
estimated  increase  is  concretely  shown  in  the  following 
table: » 


COMPARISON  OF  PAYMENT  UNDER  PRESENT  AND 
FORMER  SCALES  OF  GRADUATED  LAND  TAX 


On  unimproved  value 

At  rate  in 

At  rate  in 

At  rate  in 

At  rate  in 

(not  business  premises) 

1903-06 

1907 

1910 

1912 

£5,000 

£1.3 

£1.3 

£1.3 

£.65 

40,000 

145. 

160. 

200. 

211. 

75,000 

410. 

562. 

702. 

807. 

100.000 

677. 

1000. 

1250. 

1467. 

130,000 

1083. 

1690. 

2112. 

2517. 

150,000 

1407. 

2250. 

2813. 

3374, 

210,000 

2625. 

4200. 

6250. 

6380. 

Add  to  this  graduated  tax  the  ordinary  rate  of  Id.  in  the 
pound,  and,  if  the  owner  is  an  absentee,  fifty  per  cent 
of  the  graduated  tax  besides,  and  the  burden  becomes 
considerable.  2  Disintegration  under  these  circumstances 
seems  inevitable.  "  Even  now  analysts  are  found  who  are 
at  pains  to  prove  that  the  landowners  will  be  able  to  pay 
the  tax  of  1910  and  hold  out  against  it  as  stubbornly  as 
they  defied  its  predecessors.  In  two  years,  however,  the 
land  tax  has  increased  nearly  £160,000,  and .  .  .  the  in- 
ducements to  break  up  the  greater  properties  will,  after  next 
year,  be  very  strong  indeed."  ^ 

In  the  Commonwealth  of  Australia,  the  federal  tax  added 
to  the  state  land  taxes  makes  the  burden  in  some  cases 
heavier  even  than  in  New  Zealand.  The  expectations  with 

*  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  77. 

*  "I  know  one  owner  absent  for  his  health,  who  will  be  called  upon  to 
pay  £7000  for  the  year.  ...  Of  course  this  is  confiscation  pure  and 
simple,  and  it  will  compel  the  owner  to  sell."  The  Australasian,  August 
24,  1907,  p.  502. 

*  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  77. 


LAND  TAXES  IN  AUSTRALASIA  lOS 

regard  to  subdivision,  therefore,  apply  equally  to  Aus- 
tralia as  to  New  Zealand. 

(3)  Defective  valuation  systems  have  helped  to  frustrate 
the  purpose  of  the  land  tax.  Enough  has  been  said  con- 
cerning the  systems  of  valuation  based  on  self -assessment 
and  assessments  made  infrequently  and  in  personam.  The 
crude  scheme  of  valuation  according  to  the  grazing  capa- 
city of  the  land,  which  existed  until  1910  in  Victoria,  could 
not  be  made  effective  in  the  work  of  disintegration.  Indeed, 
it  was  estimated  that  the  nominal  valuation  of  land  in  that 
colony  (1902)  at  £9,949,429  was  so  much  below  the  actual 
value  that  about  £100,000,000  value  of  private  estates 
escaped  taxation.^  With  the  amended  laws  to  prevent 
evasion,  with  the  additional  rates  and  duplicated  taxes, 
with  more  efficient  systems  of  land  appraisal,  some  changes 
in  the  social  efltects  of  the  land  tax  may  be  looked  for  in 
Australasia. 

§  IS.  But  with  all  these  defects  in  legislation  the  pur- 
pose of  the  land  taxers  was  not  wholly  frustrated.  To  some 
extent  they  succeeded  in  shifting  the  burden  upon  an 
unpopular  class.  Not  to  mention  the  popularity  of  the 
land  tax  with  the  urban  landless  population,  the  tax  was 
acceptable  and  favored  by  certain  classes  of  landowners 
even.  This  is  to  be  explained  by  another  feature  of  the 
legislation,  namely,  the  liberal  exemptions;  for  only  a  small 
percentage  of  the  proprietors  pay  any  land  tax  at  aU  for 
state  purposes.  In  New  Zealand,  for  example,  only  30,855 
owners,  out  of  a  total  number  of  143,243  (including 
Crown  tenants),  in  1909,  were  subject  to  land  tax.''  The 
exemptions  are  equally  liberal  in  the  other  colonies. 
Thus  only  41,000  out  of  a  number  of  170,000  landed 
proprietors  in  New  South  Wales  in  1902  paid  any  land 

*  Coghlan,  Statistical  Account  of  Australia  and  New  Zealand  (1903-04), 
p.  674. 

*  It  was  estimated  by  one  authority  that  about  six-sevenths  of  those 
holding  land  in  New  Zealand  escape  the  state  land  tax.  Cf.  Papers 
Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  70. 


104  THE  TAXATION  OF  LAND  VALUE 

tax;  *  while  in  Victoria  all  city  landholders  as  well  as  all 
rural  estates  less  than  640  acres  were  until  1910  released 
from  the  tax.  As  has  been  already  pointed  out,  only 
13,387  land  owners  in  all  the  six  states  were,  in  1910-11, 
liable  for  the  Commonwealth  tax. 

Besides  the  minimum  exemption  of  land  value  ranging 
from  £50  in  Western  Australia  to  £5000  under  the  Com- 
monwealth Act,  there  are  special  exemptions  allowed  at  the 
discretion  of  the  Commissioner;  as,  for  example,  the  petty 
owner  in  New  Zealand,  whose  income  does  not  exceed 
£200,2  etc.,  in  which  case  the  amount  of  exemption  may 
reach  as  much  as  £3500;  or  the  exemption  of  all  improved 
agricultural  land  to  the  amount  of  £250  in  Western  Aus- 
tralia; or  the  exemption  in  Victoria  of  the  tax  when,  in 
cases  of  loss  by  fire,  storm  or  other  accident,  the  charge 
would  create  a  hardship  upon  the  owner. 

The  following  exemptions  from  the  Victorian  statute, 
though  more  inclusive  than  those  in  the  other  states, 
further  limit  the  application  of  the  progressive  land  tax:  ' 

1.  Land,  the  property  of  His  Majesty  which  is  unoccu- 
pied or  used  for  public  purposes. 

2.  Land  used  exclusively  for  .  .  .  commons,  mines, 
public  worship,  mechanics*  institutes,  art  galleries, 
public  libraries,  cemeteries,  agricultural  show  grounds, 
public  gardens,  primary  free  schools,  charitable  pur- 
poses, the  purposes  of  any  club  for  cricket,  football, 
golf,  etc.,  public  technical  and  working  men's  schools 
and  colleges,  the  University  of  Melbourne. 

S.  Land  vested  in  or  held  in  trust  ...  for:  any  munici- 
pality or  council  thereof;  any  waterworks;  trust  local 
governing  body;  any  church  or  religious  denomination. 

4.  Land  vested  in:  The  Victorian  Railways  Company; 
the  Minister  of   Public  Instruction;   the  Board  of 

*  Coghlan,  op.  eit.,  p.  672.  *  Cf.  supra,  p.  37. 

»  Victoria,  1  Geo.  V,  No.  2284,  §  9. 


LAND  TAXES  IN  AUSTRALASIA  105 

Land  and  Works;  the  Commissioner  of  the  Mel- 
bourne Harbor  Trust,  etc.;  the  Commissioner  of 
Savings  Banks  .  .  .  ;  trustees  for  any  Friendly  Society 
or  Trade  Union  or  Trade  Union  Institution;  any 
public  corporation  ...  if  exempted  from  land  tax  by 
the  Governor  in  Council. 

Thus  the  taxpayers  of  the  state  and  federal  land  taxes 
are  comparatively  few  in  number,  and  constitute  a  group, 
it  is  popularly  believed,  that  can  best  bear  the  burden. 

§  14.  However,  to  say  that  even  the  progressive  land 
tax  had  for  its  purposes  merely  to  disintegrate  the  large 
land  holdings  and  to  shift  the  burden  of  taxation  on  the 
recipients  of  the  unearned  increment  would  be  erroneous. 
Indeed,  other  social  and  economic  influences  were  expected 
to  result  from  the  levy  of  the  state  and  federal  taxes,  as 
well  as  from  the  levy  of  the  local  land  tax.  Owing  partly 
to  the  identification  of  the  land  tax  with  the  Single  Tax, 
great  stress  was  laid  upon  these  effects.  Would  it  destroy 
the  market  value  of  land  and  finally  put  an  end  to  private 
ownership  of  land?  Would  it  prove  the  panacea  for  all 
social  ills,  even  to  the  eradication  of  poverty.?  The  appre- 
hension that  the  existing  social  order  would  be  more  or 
less  subverted  was  general.  That  is  why,  when  the  tax  was 
first  proposed,  its  opponents  regarded  it  as  a  confiscatory, 
revolutionary,  socialistic  measure;  that  is  why,  they  said 
of  the  amended  Acts  that  they  were  "giving  an  extra 
turn  to  the  screw."  ^  That  is  why,  also,  rating  on  unim- 
proved value  was  termed  "experimental  legislation,"  and 
great  uncertainty  was  felt  as  to  the  weighty  consequences 
of  the  system.^  We  may,  therefore,  inquire,  how  these 
various  expectations  have  materialized. 

»  New  Zealand,  Pari.  Debates  (1893),  vol.  ucscxn,  pp.  240.  375-77. 
Cf.  also  The  Australasian,  April  3,  August  21,  1875;  February  17,  1877; 
December  4,  1880,  et  'passim. 

*  "  It  is  now  becoming  the  law  that  the  system  trf  taxation  should  be 
upon  the  unimproved  value,  but  I  have  no  doubt  but  experience  will  en- 


106  THE  TAXATION  OF  LAND  VALUE 

The  experience  with  the  tax  for  over  two  decades  has 
both  allayed  the  anxiety  of  its  adversaries  and  dissipated 
the  extravagant  hopes  of  its  most  ardent  adherents.  Never- 
theless, some  influences,  social  and  economic,  have  been 
traced  to  the  land  tax.  Following  the  questionnaire  of  the 
British  Government  ^  with  reference  to  the  working  of  the 
land  tax,  we  shall  consider  its  effect  on:  (1)  the  building 
trade;  (2)  land  speculation;  (3)  the  incidence  on  house 
property  and  vacant  sites,  and  (4)  rent. 

For  two  reasons  great  caution  must  be  exercised  in 
weighing  the  evidence  pro  and  con  in  respect  to  the  effects 
of  the  tax.  The  first  is,  that  the  rate  of  tax  has  hitherto 
been  too  slight  a  burden  to  occasion  great  changes;  the 
second  is,  that  the  influences  tending  toward  the  develop- 
ment of  the  Australasian  colonies,  aside  from  all  the  reform 
measures  including  the  land  tax,  have  been  numerous. 
For  example,  to  attribute  the  prosperity,  the  general  steady 
rise  in  the  value  of  land,  the  increase  in  building  operations, 
etc.,  to  the  land  tax  or  to  any  other  particular  social  legis- 
lation would  be  erroneous,  for  the  great  development  of  the 
country,  as  is  well  known,  is  largely  the  result  of  specially 
favorable  circumstances  which  enable  it  to  compete  in  the 
world  market,  of  certain  climatic  and  economic  advan- 
tages which  attract  more  settlers  to  its  soil,  and  of  other 
causes  operating  in  every  newly  settled  country. 

§  15.  These  facts  with  reference  to  the  development  of 
the  colonies  must  be  borne  in  mind  especially  in  examining 

lighten  us  very  quickly  as  to  its  effects.  Whether  those  who  advocate 
this  system  are  right  in  saying  that  its  effects  will  be  the  gradual  extinc- 
tion of  capital  value  of  freehold  land,  ...  we  shall  see  and  before  many 
years  are  over  many  of  us  will  have  learnt  a  new  lesson  in  political  econ- 
omy." Papers  Relative  to  the  Worhing  of  Taxation  on  Unimproved  Value 
of  Land  in  Queensland  (Cd.  3890),  1908,  p.  10. 

^  In  its  important  and  thoroughgoing  investigation  concerning  the 
taxation  of  land  value  the  British  Government,  in  1906,  sent  requests  to 
various  countries  for  information.  The  replies  of  the  oflBcials  in  Austral- 
asia are  not  all  of  the  same  tenor.  There  is,  nevertheless,  an  agreement 
concerning  the  effects  which  is  noteworthy.  We  propose,  for  the  most 
part,  to  summarize  their  evidence  in  the  following  sections. 


LAND  TAXES  IN  AUSTRALASIA  107 

the  effect  of  the  land  tax  on  building  operations.  The 
stimulus  given  to  the  use  of  capital  employed  in  the  build- 
ing trade  is  more  or  less  emphasized  by  the  officials  of  the 
respective  colonies.  The  expenditure  on  improvements  in 
New  Zealand  since  1893  was  said  to  have  been  so  great 
"that  the  supply  of  labor  and  materials  could  scarcely 
keep  pace  with  the  demand."  ^  This  effect  is  generally 
and  logically  attributed  to  the  exemption  of  improvements 
from  taxation;  nevertheless,  it  must  not  be  forgotten  that 
it  is  only  since  the  nineties  that  New  Zealand  has  recovered 
from  a  long  period  of  depression  and  that  general  conditions 
liave  been  especially  prosperous.  One  official,  indeed, 
traces  the  earlier  relief  from  the  depression  of  1893,  in 
Queensland,  to  the  exemption  of  improvements,  which 
greatly  encouraged  building  operations.^  In  New  South 
Wales,  the  suburban  development  that  has  taken  place 
has  been  attributed  partly  to  the  tax,  partly  to  the  im- 
proved transportation  facilities.'  So  also  in  South  Aus- 
tralia the  effect  of  the  tax  is  said  to  have  been  beneficial  to 
the  building  trade  and  to  the  development  of  the  suburbs.* 

*  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  pp.  134-35; 
also  (Cd.  3191),  1906,  p.  25.  "The  effect  on  urban  and  suburban  land 
has  been  very  marked.  An  owner  of  land  occupied  by  buildings  of  little 
value  finding  that  he  has  to  pay  the  same  rates  and  taxes  as  an  owner 
having  his  land  occupied  by  a  valuable  block  of  buildings  must  see  that 
his  interests  lay  in  putting  his  land  to  its  best  use.  The  rebuilding  of  this 
city  (Wellington)  which  for  some  years  past  has  been  rapidly  going  on 
is  largely  attributable  to  the  taxation  and  rating  on  land  values,  so  that 
the  supply  of  building  materials  could  not  at  times  keep  pace  with  the 
demand."  Ibid.  (Cd.  4750),  pp.  136-37. 

*  Papers  Relative  to  the  Working  of  Taxation  on  Unimproved  Value  of 
Land  in  Queensland  (Cd.  8890),  1908,  pp.  4,  17. 

»  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  133. 

*  Ihid.,  p.  116.  The  following  quotation  from  the  report  of  the  Com- 
missioner of  Taxes  in  New  Zealand,  is  significant  because  his  conclusions 
are  based  on  replies  from  fifty-two  local  authorities  relative  to  the  eflfects 
of  the  tax:  "The  effect  has  certainly  been  to  greatly  stimulate  the  building 
trade.  The  object  and  tendency  of  this  system  of  taxation  is  to  compel 
land  being  put  to  its  best  use,  so  that  the  greatest  amount  of  income 
may  be  derived  from  it,  and  rendering  it  unprofitable  to  hold  land  for 


108 


THE  TAXATION  OF  LAND  VALUE 


Although  the  statistics  of  the  housing  conditions  in  Aus- 
tralia bear  out  the  testimony  of  the  officials  with  regard 
to  the  increase  in  building  operations,  they  tell  us  Uttle 
about  the  influence  of  the  land  tax  on  such  operations.  From 
the  subjoined  table  the  number  of  dwellings  is  seen  to  have 
increased  more  rapidly  than  the  population  in  each  of  the 
colonies  except  Western  Australia.  From  the  standpoint 
of  congestion,  the  housing  conditions  not  only  are  good, 
but  they  have  tended  to  improve  from  decade  to  decade. 

TABLE  SHOWING  THE  INCREASE  OF  INHABITED  DWELL- 
INGS IN  THE  AUSTRALASIAN  COLONIES  FROM  1901 
TO  1911* 


Colony 


New  South  Wales 

Victoria 

Queensland 

South  Australia . . 
Western  Australia 

Tasmania 

New  Zealand . . 


1901 


Number 

cf  ill' 

habited 

dxDell- 

ings 


252,502 
241,410 
98,737 
60,856 
48,606 
34,165 
158,898 


Propor- 
tion to 
100  of 

popular 
Hon 


18.3 
19.9 
19.4 
19.4 
25.0 
19.5 
20.1 


1911 


Number 
of  in- 
habited 
dtcellr 
ings 


332,841 

273,495 

126,834 

84,437 

70,319 

40,111 

215,425 


Propor- 
tion to 
100  of 
popula- 
tion 


19.6 
20.4 
20.3 
20.1 
23.9 
20.7 
21.0 


Per  cent  cf 
increase 
1901-11 


Dwell- 
ings 


31.8 
13.2 
28.4 
20.8 
44.9 
17.4 
35.5 


Popu- 
lation 


23.3 
10.6 
22.7 
16.0 
51.9 
10.4 
30.1 


In  New  Zealand,  for  example,  the  average  number  of 
persons  to  an  inhabited  dwelling  had  decreased  from  5.17 

prospective  increment  in  value.  It  has  been  the  direct  cause  of  much 
valuable  suburban  land  being  cut  up  and  placed  on  the  market  and  thus 
rendered  more  easily  available  for  residential  purposes,  and  of  the  sub- 
divbion  of  large  estates  in  the  country,  resulting  in  closer  settlement " 
(p.  136). 

^  Compiled  from  data  in  Census  Bulletin  No.  17,  Commonwealth  of 
Australia  (1911),  and  in  Coghlan,  A  Statistical  Account  of  Australia  and 
New  Zealand  (1903-04),  p.  853. 


LAND  TAXES  IN  AUSTRALASIA  109 

in  1886  to  4,82  in  1906  and  to  4.66  in  1911.  Moreover, 
the  percentage  of  the  population  in  houses  constructed  of 
better  materials  had  increased  from  95.83  per  cent  in  1891 
to  97.64  per  cent  in  1911;  while  the  improved  accommo- 
dations were  mainly  in  the  five  to  six  room  houses,  which 
constituted  the  largest  class  of  dwellings.  There  were 
89,275  houses  of  five  to  six  rooms  in  1911,  an  increase  of 
20,885  in  five  years.  ^  As  to  Australia,  dwellings  with  five 
and  six  rooms  predominated  also  in  New  South  Wales, 
Victoria,  and  Queensland,  in  1911;  those  with  three  and 
four  rooms  constituting  the  largest  group  in  South  Aus- 
tralia, Western  Australia,  and  Tasmania.  Wooden  houses 
continue  to  predominate  in  all  the  colonies  excepting 
South  Australia,  where,  in  1911,  stone  buildings  were 
about  sixty-two  per  cent  of  all  the  dwellings.  At  the  same 
time  the  number  of  brick  houses  had  increased  consider- 
ably, the  increase  being  least  in  Queensland  and  South 
Australia.^ 

But  are  these  favorable  housing  conditions  attributable 
at  all  to  the  tax  on  unimproved  value?  Since  some  form 
of  the  tax  is  levied  in  each  of  the  colonies,  it  is  difficult 
to  draw  positive  conclusions  from  a  comparison  of  condi- 
tions in  the  several  states.  Nevertheless,  such  a  compari- 
son is  suggestive,  if  not  conclusive.  Bearing  in  mind  that 
of  the  four  largest  cities  in  New  Zealand,  Wellington  and 
Christchurch  rate  on  the  unimproved  value,  and  Auckland 
and  Dunedin  on  the  annual  value,  the  changes  in  housing 
in  these  cities  set  forth  in  the  accompanying  table  on 
page  110  deserve  consideration. 

It  is  noteworthy  that  Christchurch,  in  spite  of  its  very 
rapid  growth  of  population,  has  the  least  congestion,  and 
that  the  average  number  of  persons  per  dwelling  has  tended 
to  decrease  in  Wellington  more  than  in  Dunedin;  while 

*  Report  on  Results  of  the  Census  of  New  Zealand  (1911),  p.  24. 

*  Census  Bulletin  No.  17,  CommonweaUh  of  Australia  (1911),  p.  7; 
Coghlan,  op.  cU..  1903-04,  p.  853. 


110 


THE  TAXATION  OF  LAND  VALUE 


TABLE  SHOWING  THE  AVERAGE  NUMBER  OF  PERSONS 
TO  EACH  INHABITED  DWELLING  IN  THE  FOUR 
PRINCIPAL  CITIES  OF  NEW  ZEALAND,   1891-191 !» 


Borough 

Population 
1911 

Per  cent  of 
increase 
in  popu- 
lation 
1891-1911 

Average  number  of 
persons  to  dwelling 

1891 

1901 

1911 

Auckland 

40,536 
64,372 
53,116 
41,529 

41.6 
107.5 
227.4 

85.6 

5.09 
5.50 
5.41 
5.11 

5.17 
5.51 
5.09 
5.06 

5.47 

Wellington 

Christchurch 

Dunedin 

4.96 
4.60 
4.71 

Auckland  shows  an  increase  in  congestion  rather  than  a 
decrease  as  in  the  other  cities. 

The  optional  rating  system  in  New  Zealand  permits  of 
further  comparison.  If  the  exemption  of  improvements  from 
taxation  encourages  building  and  improvement,  then  it 
would  seem  that  for  towns  of  approximately  the  same  popu- 
lation, the  value  of  improvements  would  tend  to  be  greater 
in  the  towns  that  rate  on  the  unimproved  value.  Never- 
theless, both  because  of  the  influence  of  other  factors,^  and 
because  of  the  comparatively  few  cases  presented  in  the 
subjoined  tables,  the  effect  of  the  rating  system  on  build- 
ing operations  is  not  apparent  from  the  table.  The  value 
of  improvements  exceeded  the  value  of  the  land  in  fif- 
teen (sixty-eight  per  cent)  out  of  the  twenty-two  boroughs 
represented  as  rating  on  unimproved  value,  and  in  only 
nine  (forty-three  per  cent)  out  of  the  twenty-one  boroughs 
rating  on  capital  or  annual  value.  When,  however,  we 
find  equally  large  increments  of  value  in  improvements  in 
boroughs  that  do  not  rate  on  unimproved  value  as  in  those 

*  Report  on  Results  of  the  Census  of  New  Zealand  (1911),  p.  25. 

*  Everything  that  affects  the  site  value,  e.g.,  the  general  conditions  of 
business,  or  the  land  tax  even,  will  change  the  ratio  of  building  to  land 
Value.  For  that  reason  the  data  presented  for  comparison  are  inade- 
quate, but  are  the  best  available. 


LAND  TAXES  IN  AUSTRALASIA 


111 


I.  TABLE  SHOWING  THE  RELATIVE  VALUE  OF  LAND 
AND  IMPROVEMENTS  IN  CERTAIN  BOROUGHS  RATING 
ON  UNIMPROVED  VALUE  IN  1913  » 


Borough 


Devenport 

Grey  Lynn 

Gisborne 

Dannevirke .... 
Palmerston  North. 

Masterton 

Lower  Hutt 

Petone 

Onslow 

Wellington 

Karori 

Miramar 

Greymouth 

Christchurch  . . . 

Woolston 

Spreydon 

New  Brighton . . 

Sumner 

West  Harbour . . 

Maori  Hill 

Invercargill .... 
Campbelltown . . 


7,501 
8,491 
9,817 
3,527 

11,709 
6,585 
4,440 
7,010 
1,969 

66,338 
1,534 
1.739 
5,560 

55.098 
3,699 
3,560 
1,990 
1.987 
2,119 
2,278 

13,590 
1,865 


I 


11 
1^ 


£654,513 
511,038 

1,428,720 
381,859 

1,653,845 
572,750 
862,406 
688.609 
270.022 
11,438,441 
318,645 
514,648 
270,534 

6,145,614 
172,641 
235,360 
167,585 
272,690 
74,788 
184.000 

1,274,361 
98,570 


£874.318 
711,385 

1,133,327 
387,517 

1,272,403 
680,620 
569,537 
701,581 
271,981 
10,114,152 
,  196,720 
303,321 
557,722 

7,145,802 
303,938 
342,070 
186,569 
255,987 
129,517 
244,642 

1,793,723 
181,887 


'S'5 


57.2 
58.2 
44.3 
50.4 
43.5 
54.3 
39.8 
50.4 
50.1 
46.9 
38.1 
37.0 
67.3 
63.8 
63.7 
59.2 
52.6 
48.4 
63.3 
57.0 
68.4 
64.8 


84 

151 

102 

170 

49 

30 

42 

40 

79 

64 


that  do  (see  last  column  of  tables  I  and  II),  the  efficacy 
of  the  land  tax  in  stimulating  building  cannot  be  judged 
from  the  foregoing  data. 

With  regard  to  the  alleged  tendency  of  the  tax  to  en- 
courage overbuilding,  the  following  data  of  the  number 
of  vacant  dwellings  (see  table  on  page  113),  though 
equally  inconclusive  as  the  foregoing,  are  nevertheless  of 
interest. 

Considering  that  some  of  the  early  dwellings  must  have 

*  Statistics  of  the  Dominion  of  New  Zealand  (1913),  vol.  iv. 


112 


THE  TAXATION  OF  LAND  VALUE 


n.  TABLE  SHOWING  THE  RELATIVE  VALUE  OF  LAND 
AND  IMPROVEMENTS  IN  CERTAIN  BOROUGHS  RATING 
ON  CAPITAL  OR  ANNUAL  VALUE  IN   1913 1 


Borough 


Whangarei  * 

Birkenhead  * 

Northcote 

New  Market .... 
Mount  Eden .... 
Mount  Albert . . . 

Auckland 

Onehunga 

Waihi 

New  Plymouth . . 

Napier 

Wauganui 

Nelson 

Ly  ttelton 

Timaru 

Oamani 

Dunedin 

Momington 

St.  Kilda* 

Green  Island .... 
Invercargill  South 


2,790 
2,073 
1,537 
3,127 

10,078 
7,878 

47,783 
4,872 
6,740 
7,576 

10,910 

13,380 
8,465 
4,151 

12,048 
5,405 

48,988 
4,917 
4,486 
1,991 
1,549 


II 


£344,221 

319,415 

183,008 

370,569 

752,359 

791,660 

11,429,684 

514,137 

150,063 

1,332,112 

1,496,121 

1,686,113 

845,223 

265,510 

1,120,531 

290,531 

4,209,061 

190,541 

305,045 

60,925 

136,394 


£287,758 
266,605 
143,155 
295,560 

1,169,372 
734,600 

6,987,325 
497,128 
273,535 
872,703 

1,366,489 

1,106,359 
899,720 
693,447 

1,117,759 
542,802 

6,227,536 
404,368 
544,585 
173,751 
122,706 


"S^-S 


"S  s.-s 


45.6 
45.5 
43.8 
44.3 
60.8 
48.1 
37.9 
49.1 
64.5 
39.5 
47.7 
48.9 
51.5 
72.3 
49.8 
65.1 
59.6 
67.9 
64.0 
74.0 
47.3 


?l  1 


129 
188 

80 
118 

78 

119 

84 

63 

123 

48 


*  Adopted  rating  on  unimproved  value  in  1013. 

been  abandoned  by  the  owners  as  unfit  for  habitation,  the 
figures  do  not  indicate  much  overbuilding.  New  Zealand 
had  the  largest  proportion  of  vacant  houses,  Queensland 
the  least.  When  it  is  considered  that  urban  property  in 
1901  largely  escaped  the  state  land  taxes,  and  that  the 
system  of  rating  on  unimproved  value  was  most  prevalent 
in  Queensland,  the  very  low  percentage  (one  and  six-tenths 
per  cent)  of  vacant  houses  in  the  latter  colony  is  note- 


*  Statistics  of  the  Dominion  qf  New  Zealand  (1913),  vol.  rv. 


LAND  TAXES  IN  AUSTRALASIA 


118 


TABLE  SHOWING  PERCENTAGE  OF  VACANT  HOUSES  AND 
HOUSES  IN  CONSTRUCTIOxN  TO  THE  TOTAL  NUMBER 
OF  DWELLINGS.   1901  ^ 


Class  of 
dwelling 


Uninhab- 
ited   

In  construc- 
tion  


o  5 


5.5 
.53 


■^.S 
5*^ 


4.5 

.24 


IB 
•I- 


1.6 


7.4 
.47 


I 


4.4 
.39 


6.3 

.50 


^§1 


6.3 
.50 


worthy.  The  following  figures  of  the  proportion  of  vacant 
houses  in  the  four  principal  cities  of  New  Zealand  again 
fail  to  furnish  any  conclusive  evidence  of  the  effect  of  the 
tax  on  building.  In  1901,  when  all  the  above-named  cities  ^ 
rated  on  the  annual  value,  the  proportion  of  the  unin- 
habited dwellings  to  all  the  dwellings  in  three  of  the  four 
cities  was  less  than  a  decade  later.  Wellington  and  Christ- 
church  show  a  considerable  increase  in  the  number  of  va- 
cant houses,  but  so  does  Dunedin,  where  rating  is  still 
on  the  annual  value. 

In  this  connection  it  has  been  urged  against  the  system 
of  taxing  land  value,  that  the  exemption  of  buildings  from 
taxation  will  induce  the  owners  to  utilize  all  the  available 
space  to  the  detriment  of  sanitary  dwellings;  also  that  all 
open  spaces,  recreation  centers,  would  be  built  upon  to 
the  detriment  of  the  pubhc  welfare.  A  New  Zealand  cor- 
respondent claims  that  this  overbuilding  tendency  has 
actually  occurred  in  Christchurch  where  rating  on  unim- 
proved value  is  in  operation.'  The  evidence  on  this  point 

»  Coghlan,  op.  cit.,  1903-04,  p.  853. 

*  Wellington  adopted  rating  on  land  value  in  1901,  Christchurch  in 
1902. 

*  "It  is  causing  open  spaces  in  the  towns  to  be  cut  up  and  built  upon; 


114 


THE  TAXATION  OF  LAND  VALUE 


TABLE  SHOWING  PERCENTAGE  OF  THE  UNINHABITED 
TO  THE  TOTAL  NUMBER  OF  BUILDINGS  IN  THE 
PRINCIPAL  CITIES  OF  NEW  ZEALAND,  1901  AND  1911 » 


1901 

1911 

Number 

City 

Number 

of  vacant 

houses 

Percentage 
of  total 

Number 

of  vacant 

houses 

Percentage 
of  total 

of  houses 
in  build- 
ing, 1911 

Auckland .... 
Wellington . . . 
Christdiurch . 
Dunedin 

237 
266 
134 
105 

3.4 
3.2 
8.7 
2.0 

220 
941 
661 

488 

2.9 
7.2 
5.7 
5.5 

29 
77 
99 
48 

is,  however,  insufficient.  But  from  the  housing  conditions 
in  Australasia,  as  described  above,  it  is  clear  that  the  one 
family  house  continues  to  prevail  generally  and  that  the 
evils  of  congestion  are  not  imminent  there. 

Returning  to  the  evidence  of  the  Australasian  officials, 
we  find  it  claimed  by  many  of  them  that  the  land  tax 
has  had  a  deterrent  effect  on  speculation  in  land,  that  to 
some  extent  it  has  caused  the  "fictitious"  value  of  land 
to  decline.  Upon  the  introduction  of  the  tax  the  tendency 
has  perhaps  been  for  land  to  fall  in  value;  ^  but  with  the 

and  there  is  every  inducement,  of  course,  for  the  owner  to  crowd  as  many 
houses  as  possible  on  a  section  for  letting  purposes;  seeing  that  he  pays 
the  same  rates  whether  he  has  one  house  or  ten  on  an  acre  of  ground.  It 
has  been  most  injurious  from  this  point  of  view  in  the  cathedral  city  of 
Christchurch,  long  the  admiration  of  visitors  as  the  'Garden  City'  of 
New  Zealand.  Land  is  fairly  cheap  there,  and  almost  in  the  center  of  the 
town  were  large  and  beautiful  gardens.  .  .  .  These  were  additional 
'lungs*  for  that  city  and  added  much  to  its  picturesqueness.  The  new 
system  of  rating,  however,  has  made  it  ruinous  for  the  owner  to  keep  these 
gardens  and  so  they  are  being  cut  up  and  covered  with  more  or  less  jerry- 
built  houses.  To  this  extent  the  change  is  not  for  the  better,  and  there  is 
no  doubt  that  in  towns  the  system,  without  any  safeguards,  directly  tends 
to  the  creation  of  slums."    The  Australasian,  May  19, 1906,  p.  1168. 

*  Report  on  the  Result  of  the  Census  of  New  Zealand  (1901),  p.  23;  Results 
of  a  Census  of  New  Zealand  (1911),  p.  27. 

*  "One  of  the  immediate  effects  of  the  new  local  government  law  . . . 


LAND  TAXES  IN  AUSTRALASIA  115 

ordinary  development  of  the  country  and  the  growth  in 
population  the  value  of  the  land  has  soon  advanced  again. 
In  general  it  is  held  that  while  speculation  in  land  is  still 
rife  in  the  colonies,  the  burden  on  those  who  have  kept 
their  land  undeveloped  in  the  hope  of  appropriating  the 
increments,  has  induced  many  to  part  with  their  land. 
But  the  purchasing  of  land  for  residential  and  business 
purposes  has  been  stimulated.^  In  South  Australia,  the 
subdivision  and  sale  of  land  by  speculators  became  per- 
ceptible only  after  the  additional  and  absentee  charges 
were  levied  in  1895.  "For  years  past  there  has  been  a 
gradual  closing  up  of  all  vacant  land  around  the  city,  a 
great  deal  of  which  may  be  attributed  to  the  land  tax, 
more  particularly  since  the  application  of  additional  and 
absentee  land  taxes,  in  conjunction  with  the  increased 
rates  of  income  tax  imposed  at  the  same  time;  but  much 
of  the  movement  would  have  occurred  irrespective  of  tax- 
ation, with  the  gradual  growth,  and  advancement  of  the 
State."  ^  The  tendency  of  speculators  to  dispose  of  the 
land  because  of  the  burden  of  the  tax  was  noticeable  also 
in  New  South  Wales,  but  as  in  South  Australia  other  in- 
fluences cooperated  in  this  movement.'  The  disintegra- 
tion process  now  going  on  in  New  Zealand  and  in  the 
Commonwealth  of  Australia  is   the  strongest  evidence 

is  a  sharp  fall  in  land  values  in  the  suburban  districts.  .  .  .  None  the  less, 
property  owners  are  alarmed.  .  .  .  Meanwhile,  the  slump  in  suburban 
land  values  approaches  in  violence  to  something  of  the  kind  that  happens 
after  boom  bubbles  have  burst.  One  leading  Sydney  auctioneer  and  land 
valuer  gives  a  most  pessimistic  account  of  the  suburban  land  market.  He 
fears  a  permanent  decline  in  values."  The  Australasian,  June  27,  1908, 
p.  1614. 

1  "There  is  less  incentive  to  expend  money  in  land  in  Queensland  than 
anywhere  else,  owing  to  the  unimproved  value  of  land  having  to  bear  all 
the  local  tax."  Papers  Relative  to  the  Working  of  Taxation  on  Unimproved 
Value  in  Queensland  (Cd.  3890),  1908,  pp.  18,  19;  also  Papers  Bearing 
on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  133. 

«  Papers  Relative  to  the  Working  of  Taxation,  etc.  (Cd.  3191),  1906, 
p.  5. 

»  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  133. 


116  THE  TAXATION  OF  LAND  VALUE 

that  a  heavy  land  tax  checks  speculative  land  holdings. 
According  to  the  Commissioner  of  Taxes  of  New  Zealand,^ 
where  both  the  legislation  and  administration  of  the  tax 
has  been  most  efficient,  land  speculation  is  now  practically 
confined  to  suburban  property  for  building  purposes,  and 
"the  form  of  speculation  in  land  unused  and  held  for  a 
prospective  increment  is  rarely  met  with  in  recent  years." 
The  most  that  can  be  claimed  for  the  tax  in  regard  to 
its  effect  on  speculation  is  that  it  discourages  the  with- 
holding of  land  from  use,  and  tends  to  steady  the  value 
of  land. 

The  experience  with  the  tax  on  unimproved  value  is 
thought  to  bear  out  the  theory  of  the  incidence  of  this  tax; 
the  land  tax,  generally  speaking,  is  not  shifted  by  the 
owner  of  the  land.  The  farmers,  as  taxpayers,  are  said  to 
be  burdened  heaviest  by  this  system,  for  in  rural  communi- 
ties the  value  of  improvements  which  go  untaxed  is  in- 
significant compared  with  that  in  cities.  As  regards  the 
tax  for  state  purposes,  however,  the  small  farmer,  as  we 
have  seen,  is  exempt  for  the  most  part;  while  as  regards 
local  rates,  unless  the  differential  system  under  which  the 
rate  of  the  urban  and  rural  divisions  respectively  is  dif- 
ferent and  adjusted  according  to  the  needs  of  each  divi- 
sion, ^  rating  on  unimproved  value  will  impose  a  greater 
hardship,  relatively  speaking,  upon  rural  communities.' 

In  view  of  this  general  consensus  of  opinion  on  the  inci- 
dence of  the  land  tax,  the  following  results  of  a  comparison 
of  rentals  in  towns  that  rate  on  the  unimproved  value  and 

^  The  evidence  of  Mr.  Heyes  is  especially  noteworthy  because  of  the 
investigation  which  he  himself  caused  to  be  made  among  the  local 
authorities,  whose  testimony  he  printed  verbatim  in  his  report  published 
in  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  pp.  137-40. 

*  Cf.  supra,  pp.  90-91. 

*  The  following  is  the  report  of  a  local  body  in  New  Zealand  with  re- 
ference to  the  incidence  of  the  tax:  "Township  mostly  agricultural  land, 
and  complaints  made  that  rates  fall  heavily  on  these  lands  as  compared 
with  township  residences,  hotels,"  etc.  Papers  Bearing  on  Land  Taxes, 
etc.  (Cd.  4750),  1909,  p.  138. 


LAND  TAXES  IN  AUSTRALASIA 


117 


AVERAGE  WEEKLY  RENTS  FOR  DWELLINGS  IN  SELECTED 
BOROUGHS  IN  NEW  ZEALAND  CLASSIFIED  ACCORDING 
TO  THE  RATING  SYSTEM.   1911 » 


Class  of 

S 

h 

5 

6 

7 

8 

9 

10 

boroughs 

rooms 

rooms 

rooms 

rooms 

rooms 

rooms 

roams* 

rooms* 

Twenty-two 
boroughs 

rating  on 

unimprov- 
ed value . . 

8s. 

10.1a. 

12.5a. 

14.4a. 

17.4a. 

19.8a. 

21.3a. 

26.9a. 

Twenty-four 
boroughs 

rating  on 
annual  or 

capital 
value 

6.9s. 

9.1«. 

11.5a. 

lS.6a. 

16.2s. 

19.0a. 

22.0a. 

24.7a. 

•  Seventeen  out  of  the  forty-six  boroughs  considered  had  no  nine-room  and  twenty-two 
had  no  ten-room  dwellings.  This  fact  may  in  part  explain  the  divergence  from  the  generml 
trend  of  averages  in  the  other  columns. 

those  that  do  not  are  somewhat  startHng.  Nevertheless,  in 
viewing  the  table  it  must  be  borne  in  mind  that  although 
the  boroughs  were  selected  at  random,  the  only  basis  of 
comparison  was  the  system  of  rating,  and  that  other  influ- 
ences very  hkely  entered  in  to  account  for  some  of  the 
difference  in  rental.  As  shown  above  the  average  weekly 
rental  in  the  twenty-two  boroughs  which  had  by  1911 
adopted  the  tax  on  the  unimproved  value  was  approxi- 
mately one  shilling  higher  (except  in  the  case  of  the  nine- 
and  ten-room  dwellings)  than  in  the  twenty-four  boroughs 
imder  the  old  system  of  rating.  ^  Attention  must,  however, 
be  called  to  the  fact  that  the  inordinately  high  rentals  in 


*  The  names  tod  the  population  of  the  towns  under  consideration  are 
given  in  the  tables  supra,  pp.  111-12.  The  averages  were  computed  from 
data  in  the  Report  on  the  Results  of  a  Census  of  New  Zealand  (1911),  p. 
26.  It  is  necessary  to  mention  that  in  the  computation  of  the  averages 
the  fractions  of  a  shilling  were  disregarded. 

*  Three  of  the  twenty-four  boroughs  have  since  adopted  rating  on  the 
unimproved  value. 


118 


THE  TAXATION  OF  LAND  VALUE 


Wellington,  whose  population  is  considerably  above  that 
of  any  city  in  the  other  class  of  boroughs,  raised  the  aver- 
age of  the  group  of  towns  rating  on  the  unimproved  value. 
Moreover,  that  the  effect  of  the  tax  is  not  gauged  by  the 
comparison  of  rentals  is  clearly  shown  in  the  subjoined  com- 
parison of  the  four  principal  cities  of  New  Zealand. 

If  the  rating  system  and  population  were  the  sole  deter- 
minants of  the  variation  in  the  rentals  of  the  four  cities,  the 
lower  rental  in  Dunedin  than  in  Auckland  for  dwelhngs  of 
from  three  to  six  rooms  would  not  be  explainable.  The 
population  of  Dunedin  was  in  1911,  48,988,  of  Auckland 
47,783,  while  both  cities  had  the  same  rating  system.  Nor 
is  the  lower  rental  in  Christchurch,  with  a  population  of 
55,098,  and  the  higher  rental  in  Wellington,  with  a  popu- 
lation of  66,338,  as  compared  with  Auckland  to  be  explained 
by  the  tax  on  land  value.  The  preceding  tables,  neverthe- 
less, are  significant  in  dispelling  the  claim  that  the  tax  on 
the  unimproved  value  has  reduced  rents. 

Only  a  few  authorities  reporting  to  the  British  Com- 

AVERAGE  WEEKLY  RENTALS  IN  THE  FOUR    LARGEST 
CITIES  OF  NEW  ZEALAND  IN  1911* 


Boroughs  rating  on 

Boroughs  rating  on 

Class  of 
dwellings 

unimproved  value 

annual  value 

Wellington 

Christchurch 

Auckland 

Dunedin 

£  s.       d. 

£  s.     d. 

£  8.      d. 

£  s.      d. 

8  Rooms. . . . 

11     5.83 

7  11.16 

8    5.88 

7    9.29 

4      "      .... 

14    4.26 

10    5.97 

10     9.94 

10     6.01 

6      "      .... 

17     1.88 

13     2.88 

13     5.48 

13     1.04 

6      "      .... 

1     0  11.58 

15     5.22 

16     2.80 

15  11.21 

7      "      .... 

1     5     1.15 

18  10.48 

18  10.51 

19     1.29 

8      "      .... 

1     9     3.96 

1     0     8.82 

1     2    4.08 

1     4    0.22 

9      "      .... 

1  15     8.99 

1     2  11.69 

1     4    8.46 

1     6     6.50 

10      "      .... 

I  19     5.10 

1     6     6.75 

1  11  10.32 

1     7     8.87 

*  Report  on  the  Results  of  a  Census  of  New  Zealand  (1911),  p.  26. 


LAND  TAXES  IN  AUSTRALASIA  119 

mission  mentioned  a  fall  in  rental;  in  general  the  effect 
on  rents  seems  to  have  been  slight;  and  where,  as  in  New 
South  Wales,  rents  were  reported  to  have  declined,  the 
cause  of  the  depreciation  was  attributed  to  some  other 
factors  besides  the  tax.^ 

But  one  may  well  inquire  why  rents  should  not  have  fallen. 
For  it  might  be  expected,  as  a  result  of  the  check  in  land 
speculation,  of  the  better  utilization  of  vacant  land,  of  the 
exemption  of  improvements  from  taxation,  and  of  the 
added  stimulation  given  to  building  operations,  that  more 
houses  would  be  available  and  that  rents  would  decrease. 
The  reason  for  the  stability  and  in  some  cases  the  increase 
in  rents  may  be  found  either  in  the  failure  of  the  tax  to 
reduce  speculation  and  to  stimulate  building  operations; 
or  in  the  rapid  influx  of  immigrants,  which  has  tended  to 
counteract  the  putative  tendencies  of  the  tax  and  to  en- 
hance the  value  of  the  land.  For,  although  immediately 
upon  the  enactment  of  the  legislation  the  realty  market 
may  experience  a  depression  (without  a  change  in  rents), 
the  upward  tendency  of  land  value  soon  asserts  itself 
again. 

Summary:  In  so  far  as  the  efficacy  of  the  land  tax  can  be 
gauged  at  all,  the  results  of  the  levy  have  been  more  or 
less  beneficial  economically  and  socially.  Housing  condi- 
tions continue  to  improve  in  the  colonies  in  spite  of  the 
increase  in  population.  Had  the  rates  of  taxes  been  con- 
siderably higher  the  effects  on  land  speculation,  perhaps 
too  on  rents,  would  have  been  more  notable.  To  what 
extent  the  exemption  of  business  premises  from  heavy 

*  "Rents  of  large  residences  have  declined  considerably,  but  to  what 
extent  the  Land  Tax  has  been  a  lever  it  is  difficult  to  say.  It  has  certainly 
operated  to  some  extent,  but  there  have  been  other  factors  at  work." 
Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  133.  "The  taxa- 
tion of  the  unimproved  value  of  land  in  any  area,"  reports  an  official  of 
Queensland,  "omitting  altogether  a  tax  on  improvements,  necessarily 
lightens  the  burden  in  the  instance  of  improved  properties.  This  should 
and  does  enable  the  rent  charge  to  be  lessened."  IMd.,  p.  210. 


120  THE  TAXATION  OF  LAND  VALUE 

taxes  has  in  turn  stimulated  business  can  only  be  in- 
ferred. 

In  conclusion,  two  significant  facts  are  to  be  noted. 
First,  in  no  case  has  there  been  a  repeal  of  the  tax  except 
to  extend  its  operation;  in  other  words,  after  its  adoption, 
however  great  the  opposition  may  previously  have  been, 
the  levy  of  the  tax  ceased  to  be  a  party  measure.  Indeed, 
the  opponents  of  the  tax  seem  to  have  become  reconciled 
to  its  existence;  at  best  they  have  attempted  merely  to  dis- 
prove the  beneficent  results  predicted  by  the  sanguine 
supporters  of  the  land  tax.^  Secondly,  the  adoption  of  the 
tax  by  one  state  after  another,  by  the  local  bodies,^  and 
recently  by  the  federal  government  of  Australia,  argues 
in  its  favor  and  for  its  expediency  in  that  country. 

^  This  appears  to  be  the  attitude  of  such  an  opponent  of  the  tax  as  the 
editor  of  The  Australasian,  from  which  we  have  quoted. 

*  There  was  a  movement  on  foot  in  Tasmania  to  introduce  rating  on 
the  unimproved  value  of  land.  Land  Valuation  Bills  were  before  the 
Assemblies  in  Victoria  and  Tasmania,  and  as  pointed  out  before,  the  for- 
mer state  now  rates  on  land  value.  Cf.  The  Australasian,  July  25,  1908, 
p.  229;  September  25,  1909,  p.  823. 


CHAPTER  IV 

THE   TAX   ON   VALUE   INCREMENT   IN   GERMANY 

§  1.  Like  the  adoption  of  the  land  tax  in  Australasia, 
the  spread  of  the  tax  on  value  increment  in  Germany  has 
been  rapid;  within  the  last  decade,  it  is  noteworthy,  the 
tax  has  appeared  as  a  local,  state,  and  federal  measure. 
In  Germany  the  local  increment  tax  laid  the  foundation 
and  became  the  model  of  the  state  and  imperial  taxes. 
Hence,  in  spite  of  the  suspension  practically  of  the  local 
and  state  systems  since  the  introduction  of  the  "  Reichs- 
zuwachssteuer "  (the  imperial  increment  tax),  the  local 
taxes  must  nevertheless  be  studied  in  order  to  understand 
the  causes,  purpose,  form,  and  expediency  of  the  present 
system. 

At  the  outset  we  are  confronted  with  certain  differences, 
both  in  form  and  character,  between  the  German  local  tax 
and  the  local  system  studied  in  the  preceding  chapters. 
The  latter  is  a  direct,  the  former  an  indirect  levy;  in  one 
case,  the  tax  falls  on  the  selling  value,  in  the  other,  on  the 
value  increment;  the  one  is  a  proportional,  the  other  a  pro- 
gressive tax;  the  one  tends  to  become  a  single  tax  for  local 
purposes,  the  other  to  be  merely  a  supplementary  source 
of  revenue.  How  are  these  differences  to  be  accounted  for.? 
The  explanation  is  to  be  found  in  the  radically  diverse  fiscal 
systems  of  German  and  Anglo-Saxon  communities  re- 
spectively. 

In  England  the  development  of  the  present  system  of 
rating  on  real  property  in  the  local  bodies  can  be  traced 
from  the  Elizabethan  law  of  direct  taxation  on  property. 
This  system  has  not  only  remained  uniform  and  unchanged 
in  England,  but  has  been  taken  over  and  is  in  vogue  in  her 
colonies  generally.  In  contrast  with  this  method  of  rating. 


122  THE  TAXATION  OF  LAND  VALUE 

local  taxation  in  Germany  comprises  many  kinds  of  taxes, 
is  less  uniform  in  the  different  states,  and  has  undergone 
numerous  revisions.  Indeed,  as  the  development  of  Ger- 
many in  general  has  been  a  tardy  one,  so  the  development 
of  her  fiscal  policy  has  lagged  behind  that  of  other  nations.* 
If  we  may  be  permitted  to  summarize  the  local  fiscal  sys- 
tems, rendered  complex  on  account  of  the  different  civic 
divisions  of  local  government,^  on  account  of  the  variety 
of  need  in  different  sections  of  the  country,  and  on  account 
of  the  variety  of  legislation  of  the  separate  states,  local 
revenue  in  Germany  is,  speaking  generally,  derived  both 
from  the  levy  of  indirect  and  direct  taxes.  The  former 
consist  mainly  of  excises  on  consumption  commodities, 
the  latter  comprise  in  the  main,  the  land,  building,  and 
business  taxes,  the  income  tax  and  the  tax  on  interest.' 
Thus  the  systems  of  local  taxation  followed  the  same 
development  as  the  state  fiscal  policies;  indeed,  the  taxes 
levied  by  the  local  authorities  are  often  supplemental 
rates,  or  percentages  added  to  the  state  taxes.  The  prin- 
ciple of  taxation  conforming  to  this  complex  system,  and 
consciously  formulated  in  some  of  the  local  tax  laws,  is  that 
of  faculty  ("nach  seinem  Vermogen  und  mit  seinen 
Kraften")  *  in  contrast  to  that  of  benefit,  the  principle  of 
quid  pro  quo  to  which,  many  would  hold,  the  English  rating 
system  conforms. 

But,  since  we  are  concerned  with  a  land  tax,  it  is  neces- 
sary to  note  the  r61e  that  land  plays  in  Germany  as  a 
source  of  local  revenue.  The  land,  house  and  business  taxes 
displaced  the  old  general  property  tax  of  Prussia  in  1861. 
A  revaluation  of  the  land  on  the  basis  of  the  average  net 

1  Cf.  Wagner,  Finanzvnasenachaft,  i  Aufl.,  3  Tl.,  §  93. 

*  Gemeinden,  Districte  und  Kreise,  in  Prussia;  Gemeinden  and  KOr- 
perschaften,  in  Baden;  etc. 

'  Grund-Gebaude-Gewerbesteuem,  Einkommen-  und  Kapitalrenten- 
steuem.  The  systems  have  been  simplified  recently  by  the  enactment 
of  the  Prussian  "Kommunalabgabengesetz"  of  1893,  and  similar  state 
measures. 

*  Cf.  Wagner,  op.  cU.,  4  Tl.,  §  26. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    123 

product  of  the  land  was  then  made  and  the  land  tax  was 
apportioned  among  the  local  bodies,  and  has  since  then 
remained  a  fixed  land  charge.  The  defects  of  this  tax  are 
admitted  by  all  authorities.  ^  The  tax  on  houses  which  is  a 
separate  tax  is  levied  on  the  basis  of  the  average  annual 
rental  during  the  ten-year  period  preceding  the  valuation. 
The  assessment  is  subject  to  revision  only  once  in  fifteen 
years.  This  tax  hkewise  weighs  unequally  on  different 
taxpayers.  That  land  has  contributed  httle  to  the  local  re- 
ceipts can  be  seen  from  the  following  data  showing  the  per- 
centage of  the  total  tax  receipts  collected  from  the  "  Grund- 
und  Gebaudesteuem  "  in  1889,  in  the  following  important 
German  cities:  ^ 

Per  cent  Per  cent  Per  cent 

Altona 49.20  Kassel 16.80  Breslau 10.16 

Stuttgart...  28. 53  Wiesbaden 16.34  Magdeburg 8.93 

NUmberg . .  .21 .  86  Dresden 16.18  Miilhausen  i.  E,. .  8 .  45 

Karlsruhe .  .  21 .  05  Darmstadt 15 .  27  Strassburg  i,  E.  . .  5 .  66 

Mannheim.  20.88  Frankfurt  a.  0 15.18  Metz 4.44 

MUnchen  ..20.54  Berlin 14.84  Frankfurt  a.  M ...  0 . 

Mainz 17.81  Augsburg 13.31 

Leipzig 18.68  Cologne 11.69 

With  few  exceptions  (Altona,  Stuttgart)  land  was  not  a 
very  important  source  of  income,  contributing  about  one- 
fifth  of  the  local  revenue  in  four  cities  and  less  in  the  others. 
Frankfurt  a.  M.,  it  will  be  noted,  levied  no  land  and  house 
taxes.  Instead,  a  rental  tax  (Mietsteuer)  was  levied  in 
that  city  as  well  as  in  other  cities  (Beriin,  for  example). 
In  some  of  the  above-mentioned  municipaKties,  Altona, 
Frankfurt  a.  M.,  Leipzig,  and  Dresden,  a  tax  on  land  trans- 
fer is  charged.  On  the  whole,  however,  in  comparison  with 
Anglo-Saxon  countries,  the  burden  of  taxation  on  land  is 
a  light  one. 

»  Wagner,  op.  cit.,  4  TI.,  §  13.  Cf.  Adickes,  "Uber  die  Weitere  Ent- 
wicklung  des  Gemeinde-Steuerwesens  auf  Grund  des  preussischen  Kom- 
munalabgabengesetzes  vom  14  Juli  1893."  Zeitschrift  fur  die  gesamte 
Staatsvnssenschaft,  vol,  L  (1894),  p.  685. 

*  Ibid.,  p.  415. 


124  THE  TAXATION  OF  LAND  VALUE 

From  this  brief  sketch  of  the  local  tax  systems  it  will  be 
readily  seen  that  in  Germany  a  direct  proportional  tax  on 
the  unimproved  value  of  land,  such  as  was  developed  in 
Australasia,  would  have  been  anomalous  and  revolutionary. 

§  2.  Having  shown  why  the  German  land-value  tax  had 
to  assume  an  essentially  different  character  from  the  tax 
on  unimproved  value,  we  shall  in  the  following  sections 
attempt  to  account  for  the  form  it  did  assume.  The  epoch- 
making  reform  in  local  taxation  was  the  Prussian  "Kom- 
munalabgabengesetz  "  of  July  14, 1893.  Its  importance  lies 
not  so  much  in  the  increase  of  taxing  powers  granted  to 
the  local  governments,^  as  in  the  division  of  revenue  sources 
between  the  state  and  local  authorities.  The  Act  is  signi- 
ficant, moreover,  not  because  it  empowered  the  communi- 
ties to  levy  direct  and  indirect  taxes  on  property  and  land  ^ 
(taxes  they  already  levied),  but  because  it  took  from  the 
communities  the  power  (1)  of  raising  income  taxes  (except 
as  percentages  added  to  the  state  income  taxes  ^)  and 
(2)  of  introducing  excise  duties  on  meat,  grain,  flour, 
pastry,  potatoes  and  fuel;  and  where  these  taxes  already 
existed,  the  rate  of  tax  could  not  be  increased.*  These  re- 
strictions, it  is  clear,  have  made  the  local  bodies  more  de- 
pendent upon  property  for  revenue  and  have  aided  in  the 
endeavor  to  make  local  fiscal  policy  conform  with  the  bene- 
fit principle  of  taxation.^ 

The  "  Kommunalabgabengesetz,"  in  fact,  did  more.   In 

^  Local  autonomy  in  taxation  dates  back  to  very  early  times  in  German 
history;  but  all  taxing  powers  were  taken  from  the  local  governments  by 
Friedrich  Wilhelm  I  (1738)  and  only  restored  to  them  in  1808.  Cf.  Wag- 
ner, oTp.  cU.,  4  Tl..  §  26. 

*  Preussisches  Kommunalabgabengesetz  vom  H  Jvli  1893,  §§  IS,  20, 
28,24. 

»  Ibid.,  §  36.  *  Ibid.,  §  14. 

'  This  tendency  to  simplify  local  taxes  in  conformity  with  economic 
principles  is  shown  in  the  recent  legislation  of  the  other  German  states. 
Saxony  had  relegated  the  land  tax  to  the  local  governments  as  early 
as  1873.  Cf.  Verhandlungen  des  Vereins  fur  Sozialpolitik  (1911),  pp. 
14/.,  18. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    125 

authorizing  the  communities  to  levy  special  land  taxes 
(besondere  Steuern  vom  Grundbesitz)  and  to  tax  building 
sites  (Bauplatze)  at  a  higher  rate  than  other  property,^ 
the  Act  opened  the  way  for  the  levy  of  a  discriminatory 
tax  on  land.  These  taxes  which  took  the  form  of  the 
"Bauplatzsteuer"  and  "Steuer  nach  dem  gemeinen  Wert" 
were  indeed  the  precursors  of  the  tax  on  value  increment. 
Among  these  antecedent  attempts  to  discriminate  against 
land  in  taxation  the  "Umsatzsteuer"  must  be  included. 
We  turn  to  the  consideration  of  these  land  taxes. 

§3.  The  "Umsatzsteuer"  collected  on  the  occasion  of 
a  transfer  of  real  property  very  probably  developed  out 
of  the  prevailing  practice  of  charging  a  fee  for  registering 
and  transferring  the  deed  of  sale.^  That  it  was  originally  in- 
tended as  a  fee  appears  from  the  names  of  the  charges. 
Thus  in  Emden  (as  early  as  1670)  it  was  known  as  "Siegel- 
geld,"  seal  money;  ^  in  Danzig,  as  "Kaufschoss,"  stamp 
duty  on  conveyance;  in  Hildesheim  (1374),  as  "Litkaufs- 
geld,"  originally  drink-money.*  Whether  the  fiscal  ex- 
pediency of  the  charge,  or  some  other  cause,  led  to  its  de- 
velopment into  a  tax,  the  "Umsatzsteuer"  must  now  be 
regarded  as  a  tax,  instead  of  a  fee,  for  the  following 
reasons:  — 

(1)  The  amount  of  tax  is  a  percentage  of  the  selling 
price  of  the  property;  the  charge  is,  therefore,  not  pro- 
portioned to  the  expense  of  the  service  as  in  the  case  of  a 
fee. 

(2)  In  most  cases  (Leipzig,  Dresden,  and  Chemnitz  are 
exceptions),  no  charge  is  paid  when  the  exchange  of  prop- 

^  Preuasisches  Kommunalabgabengesetz  vom  H  Juli  1893,  §§  25,  27. 

*  The  system  of  land  registration  in  the  "Grundbuch"  is  almost  uni- 
versal throughout  Germany.  Cf.  Papers  Bearing  on  Land  Taxes,  etc. 
(Cd.  4750),  1909,  p.  12. 

*  Not  only  upon  the  sale  of  real  property  but  upon  the  sale  of  ships, 
"Siegelgeld"  was  collected.  Cf.  Adickes,  op.  cit.,  p.  434. 

*  The  fee  displaced  the  wine-drinking  upon  the  close  of  a  bargain.  Cf. 
Lilbben,  Mnd.  Handworterbuch,  p.  208. 


126  THE  TAXATION  OF  LAND  VALUE 

erty  is  the  result  of  a  gift,  or  of  a  bequest;  showing  that  the 
tax  was  intended  to  fall  on  exchanges  of  property  involving 
profits. 

(3)  The  receipts  from  this  tax  are  devoted  to  other  pur- 
poses than  to  cover  the  cost  of  service.  Thus  in  Dresden  the 
receipts  are  used  for  poor  reUef,  schools  and  fire  protection.^ 
Similarly  in  other  cities. 

The  "  Umsatzsteuer "  is  widespread  throughout  Ger- 
many. Under  the  name  of  "Wahrschaftsgeld"  this  trans- 
fer tax,  levied  continuously  since  1820,^  is  still  a  prolific 
source  of  revenue  for  Frankfurt  a.  M.  In  Prussia,  all  but 
thirteen  out  of  the  two  hundred  and  sixty-six  cities  of  more 
than  10,000  inhabitants  levy  land-transfer  taxes.'  The  rate 
of  tax  in  Prussia  varies  in  the  different  cities,  from  one  to 
two  per  cent  of  the  value  of  the  property  including  the 
structures  and  improvements.  BerUn  and  Konigsberg  levy 
the  tax,  drawing  a  distinction  between  improved  and  un- 
improved land ;  in  Berlin  the  rate  is  one  per  cent  in  case 
of  exchanges  of  improved  land,  two  per  cent  in  case  of 
unimproved  land,  while  in  Konigsberg  it  is  two  per  cent 
and  three  per  cent  in  the  city  and  suburbs  respectively.* 

The  tax  on  land  transfers  is  also  prevalent  in  the  other 
German  states.  In  Hessen,  for  example,  the  "Umsatz- 
steuer "  is  levied  for  state  purposes,  but  the  local  bodies  were 
granted,  in  1907,  the  option  of  levying  supplementary  rates 
not  to  exceed  fifty  per  cent  of  the  revenue  of  the  state  tax. 
This  additional  levy  must  be  in  accordance  with  the  fol- 
lowing progressive  scale.^  When  the  value  of  the  property 
sold  is  less  than  1000  marks,  the  rate  is  .1  per  cent:  — 

*  Cf.  Adickes,  op.  dt.,  pp.  440-41. 

'  Schriften  des  Vereins  fiir  Sozialpolitik  (1910),  vol.  cxxvii,  p.  15;  cf. 
with  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  10,  where 
the  "Wahrschaftsgeld"  is  said  to  have  been  levied  as  early  as  1801  in 
Frankfurt. 

*  Schriften  des  Vereins  fiir  Sozialpditik  (1910),  vol.  cxxvii,  p.  15. 

*  Konimunales  Jakrbuch  (1910),  pp.  615-16. 

*  Schriften  des  Vereins  fiir  Sosialpolitik  (Gemeindefinanzen),  vol. 
cxxvi,  p.  62. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    127 

Prom    1,000  to    2,000  marks,  the  rate  is  .2  per  cent 

2,000  "  10,000      "A   "      " 

**      10,000  "  20,000      "         "      "   "  .6   "      " 

•*      20,000  "  60,000      "         ' .8    "      " 

Over  50,000  "         "      "   "    1    "      " 

In  1903,  the  commimes  of  Wtlrttemberg  were  similarly 
empowered  to  impose  an  "Umsatzsteuer,"  of  which  the 
maximum  rate  was  not  to  exceed  one  per  cent  additional 
to  the  rate  levied  for  state  purposes.^  The  rate  in  Baden  is 
fixed  for  the  local  governments  at  one-half  per  cent.  The  tax 
is  obligatory  and  is  levied  as  a  supplement  to  the  state 
transfer  tax.''  The  local  rate  in  Bavaria  is  one-half  per  cent, 
forming  an  addition  to  the  state  tax.'  Similarly  in  Saxony, 
where  2400  communes  levy  land-transfer  taxes  at  rates 
varying  from  eight-hundredths  per  cent  to  one  per  cent. 
The  state  tax  is  limited  to  a  minimum  rate  of  one-half  per 
cent  of  the  selling  price  of  the  property.*  It  is  noteworthy, 
that  in  contrast  to  these  low  rates  of  tax,  the  state  "Um- 
satzsteuer "  in  Alsace-Lorraine  is  five  and  one-half  per  cent 
(including  the  fee  for  recording  of  deed).  This  shows  the 
influence  of  France  where  the  exchange  tax  is  unusually 
high,  being  over  six  per  cent.* 

The  importance  that  the  "Umsatzsteuer"  has  assumed 
in  Germany  is  due  in  great  part  to  the  propaganda,  since 
the  seventies,  of  men  like  Adoph  Wagner  who  have  urged 
the  expediency  of  the  tax  on  the  ground  that  the  commun- 
ity is  entitled  to  share  the  profits  accruing  from  the  great 
appreciation  in  land  value  in  urban  communities.  The 
recognition  of  the  evils  that  speculation  in  land  occasions, 
and  of  the  enormous  profits  reaped  by  individuals  by  virtue 
of  their  ownership,  not  toil,  is  general.  Hence  the  "  Um- 
satzsteuer." 

*  Schriften  des  Vereins  fur  Sozial-politik,  vol.  cxxvi,  pp.  88-89. 

«  lUd.,  p.  119.  »  lUd.,  p.  221.  *  Ibid.,  p.  262. 

•  Adickes,  <yp.  cit.,  pp.  441-42.  For  the  prevalence  of  the  "Umsatz- 
steuer "  in  Germany  cf.  also  Bimbaum,  Die  Gemeindlichen  Steuersyt- 
teme  in  DeiUschland. 


128     THE  TAXATION  OF  LAND  VALUE 

§4.  But  by  itself  the  "Umsatzsteuer"  was  ineffective. 
And  under  the  slight  burden  of  the  "  Grundsteuer "  specu- 
lation continued  and  great  fortunes  were  made  through  the 
enormous  appreciation  in  the  value  of  the  land  following 
the  industrial  awakening  of  Germany  after  1871.  And  as 
the  budget  of  the  municipalities  grew  with  the  development 
of  the  cities,  it  became  more  and  more  evident  that  the  ur- 
ban landowners  who  benefited  most  through  the  growth 
of  the  city  were  not  contributing  their  full  quota  to  the 
revenue.  To  make  them  do  so,  it  was  necessary  to  tax 
their  land  on  the  basis  of  its  selling  price,  or  capital  value, 
not  as  formerly  on  its  product.  This  was  the  origin  of  the 
"Steuer  nach  dem  gemeinen  Wert."  Like  the  old  land  tax 
this  is  a  direct  levy,  but  the  basis  of  valuation  is  now  the 
market  value  of  the  land.  The  rates  vary  from  two  to  four 
per  cent  of  the  value  of  the  property  (improvements  are 
generally  included). 

The  first  attempt  to  substitute  "capital  value"  for  prod- 
uct as  the  basis  of  taxation  was  made  in  Bremen.  The 
Act  passed  in  1874  changed  the  rate  of  the  old  tax  from  one 
and  a  half  to  two  mills,  and  provided  for  the  assessment  of 
urban  property  on  the  basis  of  its  selling  value.  ^  In  answer 
to  the  protest,  which  the  latter  provision  aroused,  the 
"Senatskommissar"  replied  that  "in  his  opinion  the  sell- 
ing value  was  the  correct  basis  of  valuation.  In  the  case  of 
purely  agricultural  land  under  cultivation  the  selling  value 
was  identical  with  the  produce  value  (Ertragswert).  In  case 
of  land  used  for  agricultural  purposes  but  which  could  be 
sold  for  building  sites,  the  selling  value  exceeded  the  usu- 
fruct value.  It  was,  therefore,  proper  that  the  selling  value 
be  made  the  basis  of  valuation.  The  selling  value  of  land 
was  a  profit  which  accrued  to  the  owner  not  by  virtue  of 
his  own  labor  but  through  the  labor  and  toil  of  many  per- 
sons. Therefore,  it  was  proper  that  the  community  demand 
a  tax  from  this  source."  ^   As  already  mentioned,  this  senti- 

*  Adickes,  op.  cit.,  p.  599.  '  Ibid. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    129 

ment  was  voiced  not  only  by  the  economists  but  by  public 
men  in  the  Prussian  Parliament  and  in  the  "Verein  fUr 
Sozialpolitik."  ^ 

But  while  this  first  attempt  failed  and  the  Bremen  Act 
was  repealed  (1878)  because  of  the  difficulties  of  valuation,' 
the  movement  spread.  Thus,  in  Prussia,  twenty-seven 
cities  out  of  the  thirty-four  with  a  population  exceeding 
75,000  had,  in  1908,  levied  such  a  tax.  Three  more,  Kassel, 
Frankfurt  a.  M.,  Posen,  made  the  selling  value  the  basis 
of  the  valuation  of  undeveloped  land,  but  rental  the  basis 
for  valuing  improved  land.  Only  Altona,  Halle,  and  Han- 
nover of  the  largest  cities  persist  in  taxing  the  usufruct 
instead  of  the  land  value.'  So  do  also  the  smaller  communi- 
ties especially  in  Eastern  Prussia.  The  reason  is  that  they 
are  chiefly  rural  and  the  selling  value  of  the  land  corre- 
sponds closely  with  the  value  on  the  basis  of  productivity. 
In  Hessen,  Saxony,  and  Baden  the  tax  on  selling  value 
is  in  force.  In  Baden  the  law  even  provides  that  the  tax 
commissioner  of  urban  communities  should  make  an 
onnwa/ valuation  of  the  building  land  and  should  increase 
the  assessed  valuation,  as  soon  as  the  value  had  appre- 
ciated at  least  ten  per  cent  above  that  of  the  preceding 
year.^  Indeed,  the  expediency  of  the  "Steuer  nach  dem 
gemeinen  Wert"  for  urban  property  is  everywhere  ac- 
knowledged.* 

§  5.  In  making  the  taxation  of  land  on  the  basis  of 
capital  value  optional  with  the  local  governments,*  and 

^  Adickes,  op.  cit.,  pp.  612-13. 

'  Because  of  the  "fictitious"  land  values  due  to  overspeculation,  the 
assessors  had  overvalued  the  land  for  assessment  purposes.  Great  re- 
ductions had  to  be  made  when  the  appeals  were  heard.  Cf.  ibid.,  p.  601. 

'  Schriften  des  Vereins  fiir  Sozialpolitik,  vol.  cxxvn,  p.  13. 

*  Ibid.,  vol.  cxxvi,  pp.  26-27,  256.  136-37. 

*  Ibid.,  pp.  14,  15.  "Die  Besteuerung  des  Gnmdeigentums,  das  schon 
Baugelande  geworden  ist,  oder  es  in  absehbarer  Zeit  zu  werden  verspricht, 
nach  seinem  gemeinen  Wert  und  nicht  nach  seinem  Ertrag  wird  auch 
heute  kaum  noch  emstlich  bekampft."   Ibid.,  p.  27. 

*  Preusaischea  Kommunalabgabengesetz  (1893),  §  25. 


130  THE  TAXATION  OF  LAND  VALUE 

in  sanctioning  the  discriminatory  tax  on  building  sites,* 
the  "Kommunalabgabengesetz"  of  1893  aided  greatly  the 
movement  of  land-value  taxation.  The  government  recog- 
nized thereby  the  serious  problems,  fiscal  and  social,  which 
the  political  and  economic  changes  had  brought  to  pass. 
The  question  of  the  best  means  by  which  the  local  bodies 
might  appropriate  part  of  the  "unearned  increment"  ac- 
cruing from  land  was  the  vital  point  at  issue.  Two  possi- 
bilities presented  themselves.  First,  in  conformity  with 
§  27  of  the  Act,  a  direct  tax  on  land  might  be  introduced, 
differing  from  the  old  land  tax  (Grundsteuer)  as  follows: 
(1)  instead  of  rental  value  as  the  base  of  the  tax,  the  selling 
value  might  be  substituted;  (2)  instead  of  treating  all  land 
ahke,  the  property  might  be  divided  into  several  classes, 
each  class  subject  to  a  different  rate  of  tax,  or  to  a  different 
basis  of  assessment.  2  The  objections  to  such  a  tax,  however, 
were  serious.  Not  only  would  the  classification  be  arbi- 
trary and  difficult  to  make,  but  the  valuation  system  for 
which  no  scientific  precedent  existed  in  Germany,  would 
incur  such  inequaHties  in  assessment  as  in  the  Bremen 
experiment.  Moreover,  a  revision  of  the  old  apportioned 
land  tax,  it  was  feared,  would  weigh  heavily  on  mortgaged 
property'  and  on  the  bona  fide  owner  as  compared  with  the 
speculator. 

Secondly,  an  indirect  tax  to  fall  only  on  the  "unearned 
increment "  might  be  levied.  Already,  the  expediency  of  the 
"Umsatzsteuer"  was  generally  recognized.  And  from  this 
tax  to  the  tax  on  value  increment  was  a  short  step.   Even 

^  Preussisches  Kommunalahgabengesetz  (1893),  §  27:  "Die  Steuern  vom 
Grundbesitz  sind  nach  gleichen  Normen  und  Satzen  zu  verteilen.  Lie- 
genschaften,  welche  durch  die  Festsetzung  von  Baufluchtlinien  in  ihrem 
Werte  erhbht  worden  sind  (Bauplatze),  kSnnen  nach  Massgabe  dieses 
hQheren  Wertes  zu  einer  hoheren  Steuer  als  die  Ubrigen  Liegenschaften 
herangezogen  werden.  Diese  Besteuerung  muss  durch  Steuerordnung 
geregelt  werden." 

^  Under  §  27  uniform  tax  rates  and  uniform  assessment  bases  within 
each  class, are  required.  Cf.  Note  1,  supra.  This  bars  out  a  progressive 
scale  from  the  direct  land  tax.  Cf.  Adickes,  op.  cit.,  p.  633. 

*  Adickes,  op.  cit.,  p.  444. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    131 

the  progressive  scale  was  applicable  to  the  "Umsatzsteuer** 
as  we  saw  in  the  case  of  Hessen.^  This  latter  tax,  then,  was 
the  origin  of  the  "Wertzuwachssteuer." 

The  close  relation  between  the  transfer  and  increment 
taxes  will  be  clear  from  the  following  analysis  of  the  tax 
on  value  increment.  The  characteristics  peculiar  to  it  are 
the  following:  — 

(a)  The  tax  is  charged  on  specific  occasions  of  transfer 
of  real  property. 

(b)  The  tax  falls  on  the  increment,  that  is,  on  the  differ- 
ential between  the  prior  purchase  price  and  the  selling 
price  on  the  occasion  of  the  transfer. 

(c)  The  basis  of  assessment  is  the  selling  value. 

(d)  The  tax  falls  on  the  land  apart  from  the  improve- 
ments. ^ 

As  regards  (a)  and  (c),  the  form  of  tax  and  basis  of  as- 
sessment, the  tax  on  value  increment  does  not  differ  from 
the  "Umsatzsteuer."  But  as  regards  (6),  the  base  of  tax, 
there  is  a  deviation  from  the  "Umsatzsteuer."  This  dis- 
tinctive feature  of  the  tax  on  value  increment  is,  however, 
not  without  precedent.  Under  the  income  taxes  in  Ger- 
many, it  is  noteworthy,  profit  made  in  any  "Konjunktur" 
transaction  or  through  the  exchange  of  property  is  taxable 
as  a  form  of  income.'    In  Hamburg,  for  example,  the  In- 

^  The  justice  of  progressive  taxation  was  considered  greater  in  the  case 
of  the  unearned  increment  accruing  from  land  than  in  the  case  of  the 
income  tax.  Ibid.,  p.  642.  It  is  interesting,  as  showing  the  close  rela- 
tionship between  these  taxes,  that  B.  Eberstadt  (Entwurf  einer  Bau- 
platzsteuer)  proposed  a  progressive  "Umsatzsteuer"  instead  of  the 
"Zuwachssteuer."  Cf.  Preussiache  Jahrbiicher  (1893),  vol.  Lxxiv,  p.  480. 
In  Bavaria  too  the  property  transfer  tax  is  progressive.  Cf.  Bimbaimi, 
op.  cit.,  p.  203. 

*  It  has  been  asserted  that  the  "Wertzuwachssteuer"  is  a  tax  on  real 
estate,  not  on  pure  land  value.  Cf.  Seligman,  Essays  in  Taxation  (ed. 
1913),  p.  515.  This  is  correct  in  so  far  as  it  applies  to  the  imperial  tax,  but 
is  the  result  of  the  partisan  influences  brought  to  bear  on  the  legislation 
of  that  tax.  See  infra,  §  13. 

*  Cf.  Fuisting,  Die  Preussischen  direkten  Steuem  (6th  ed.).  vol.  I,  pp.  61 
ff.  C/.  also  §  12  of  the  Einkommensteuergesetz  vom  24  Juni  1891,  "Ein- 
komen  aus  Kapitalvermogen." 


132  THE  TAXATION  OF  LAND  VALUE 

come  Tax  Law  of  1903  provides  for  the  assessment  of  the 
"profit  made  on  any  transaction  of  sale  of  real  property  .  .  . 
the  amount  taxable  being  the  difference  between  the  sell- 
ing price  and  the  pm-chase  price,  expenditure  on  perma- 
nent improvements  being  added  to  the  purchase  price  in 
making  the  calculation."  ^ 

The  validity  of  the  last  characteristic  (d)  may  at  first 
be  questioned  because,  apparently,  the  selling  price  of  the 
property  (improvements  included)  is  made  the  basis  of 
assessment  just  as,  for  example,  in  the  "Umsatzsteuer." 
In  reality,  however,  it  is  the  purpose  of  the  deductions  and 
additions  to  the  selling  and  purchase  prices,  ^  to  exempt 
the  value  accruing  from  the  investment  of  capital  and  labor. 
In  fact,  it  is  the  method  of  computing  the  value  increment, 
not  the  principle,  which  is  in  question.  The  system  of 
scientific  valuation  of  land  apart  from  improvements  has 
made  little  progress  in  Germany,'  even  though  the  land  and 
house  taxes  have  long  been  separately  assessed.  The  prin- 
ciple of  exempting  the  structures  and  improvements  from 
the  increment  tax,  however,  cannot  be  separated  from  the 
principle  of  the  "Zuwachssteuer"  itself,  because  (1)  the 
value  of  the  buildings  and  improvements  does  not  increase 
with  time,  and  (2)  any  value  of  the  property  due  to  such 
improvements,  it  is  reasoned,  is  the  legitimate  return  from 
capital  and  not  to  be  placed  in  the  same  category  with 
the  "unearned  increment." 

§  6.  To  show  further  the  correlation  between  the  tax  on 
value  increment  and  the  "Umsatzsteuer,"  the  first  "Zu- 
wachssteuer" enacted  will  here  be  examined.  The  Frank- 
furt a.  M.  Act,  as  well  as  the  laws  of  Cologne,*  Gelsenkirchen, 

1  Cited  in  Papers  Bearing  on  Land  Taxes,  etc.  (Cd,  4750),  1909,  p.  16. 

*  See  infra,  §  13. 

»  Cf.  Verhandlungen  des  Vereins  fiir  Sozialpolitik  in  Niirnberg  (1911), 
in  Schrifien  des  Vereins  fiir  Sozialpolitik,  vol.  cxxxviii,  p.  97. 

*  The  Cologne  law  provides  that  when  the  seller  has  paid  an  increment 
tax,  the  purchaser  may  deduct  the  amount  of  the  tax  from  the  transfer 
tax  payable  by  him;  but  the  amount  so  deducted  must  not  exceed  fifty 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    ISS 

Magdeburg,  Gorlitz,  Hannover,  Berlin,  is  a  compound  of 
the  land-transfer  and  the  progressive  value-increment  taxes. 
The  tax  on  value  increment  is  merely  supplemental  to 
the  land-transfer  tax.  The  Frankfurt  ordinance  in  which 
both  taxes  are  incorporated  is  the  "Wahrschaftsgeldord- 
nung"  of  1904.  It  comprises,  in  reality,  three  taxes:  — 

(1)  An  ordinary  transfer  tax  of  two  per  cent  of  the  selling 
price. 

(2)  A  progressive  transfer  tax  collectible  in  addition  to 
the  ordinary  transfer  tax,  in  case  of  land  which  has  not 
changed  hands  in  more  than  twenty  years.  This  additional 
tax  is  chargeable  only  when  the  selling  price  on  the  occa- 
sion of  levy  exceeds  the  last  purchase  price  by  an  amount 
greater  than  the  amount  of  the  additional  tax.^  The  base 
of  the  tax  is  the  selling  price  of  the  property;  and  a  dis- 
tinction is  drawn  between  improved  and  unimproved  land, 
as  the  following  scale  of  rates  shows:  — 

(a)  For  improved  estates,  if  there  has  elapsed,  since  the 
last  preceding  change  of  ownership,  — 

More  than  20  years,  but  not  more  than  30  years,  1    per  cent 

"     30     "        "      "      "        "     40     "      1^   "      " 
«        «     4Q     «  2     «.      « 

(6)  For  unimproved  property,  if  there  has  elapsed,  since 

the  last  preceding  change  of  ownership,  — 

More  than  20  years,  but  not  more  than  30  years,  2    per  cent 
"     30     "        "     "       "        "     40     "      3     "      " 

<«  «  ^Q  «  (i  «  «  «  gQ  «  ^  f«  C< 

"     50     "        "      "       "        "     60     "      5     "      " 
"     60     "  6     "      " 

per  cent  of  the  whole  transfer  tax.  (§  1.)  Moreover,  it  is  provided  that 
whenever  the  tax  on  value  increment  reaches  a  sum  greater  than  400,000 
marks,  the  rate  of  the  transfer  tax  shall  be  reduced  by  one-half  of  one 
per  cent;  when  it  reaches  a  sum  greater  than  800,000  marks,  the  reduc- 
tion of  the  rate  of  the  transfer  tax  shall  be  one  per  cent.  (§  15.)  Cf. 
Kommunales  Jahrbuch  (1909),  vol.  i,  p.  675.  The  law  is  translated  in 
Quarterly  Journal  of  Economies,  vol.  xxii,  pp.  106  ff. 

^  Revised  ordinance,  1906,  §  3.  Translated  in  Papers  Bearing  on  Land 
Taxes,  etc.  (Cd.  4750),  1909,  pp.  20  jf.  To  ascertain  whether  the  property 
has  appreciated  in  value,  the  expenditures  on  permanent  improvements, 
including  new  buildings,  or  alterations  to  buildings,  must  be  added  to  the 
previous  purchase  price. 


134  THE  TAXATION  OF  LAND  VALUE 

(3)  The  third  tax  embodied  in  the  ordinance  is  the  tax 
on  value  increment.  This  is  likewise  an  additional  charge 
collectible  only  in  case  of  land  which  has  changed  hands 
within  less  than  twenty  years.  The  base  in  this  case  is  the 
value  increment,  ascertained  by  taking  the  difference 
between  the  last  purchase  price  and  the  present  selling 
price.  In  computing  the  value  increment,  however,  the 
following  additions  to  the  purchase  price  are  made:  — 

1.  The  expenditure  of  permanent  improvements,  in- 
cluding cost  of  street  construction  and  sewer  charges,  the 
cost  of  new  buildings  or  alterations;  ^ 

2.  Five  per  cent  of  the  previous  purchase  price  as  com- 
pensation for  the  cost  incurred  in  connection  with  the  pre- 
vious transfer;  this  includes  the  stamp  duty,  transfer  tax, 
court  charges,  etc.; 

3.  In  case  of  unimproved  land,  not  used  for  purposes  of 
agriculture  or  industry  by  the  vendor,  four  per  cent  of  the 
purchase  price,  excluding  compound  interest,  as  compen- 
sation for  capital  invested. 

Moreover,  the  increment  tax  is  not  levied  if  the  value 

increment  is  less  than  fifteen  per  cent  of  the  purchase 

price  (the  above  additions  included). ^  The  progressive  scale 

of  rates  is  as  follows:  — 

2%  of  the  increment,  if  the  increment  is  15  to  20%  of  the  purchase  price 

8%  "    "  "        "    • 20  "  25%  "    " 

4%  "     "  25  "  30%  • 

6%  "     "  "         '  30  "  85% 

And  so  on,  one  per  cent  for  every  five  per  cent  of  increment 
until  the  maximum  rate  of  twenty-five  per  cent  tax  is 
reached.  And  this  increment  tax  is  paid  in  addition  to  the 
land-transfer  tax. 

§  7.  Such  was  the  origin,  from  a  fiscal  standpoint,  of  the 
"Wertzuwachssteuer."  Let  us  now  consider  the  under- 
lying principles  of  the  tax,  in  so  far  as  they  have  evolved 

*  Revised  ordinance,  §  4.  To  the  extent  to  which  such  expenditures 
are  covered  by  insurance,  however,  no  account  shall  be  taken  of  them. 

*  In  the  original  Act  of  1904  an  increment  of  less  than  30  per  cent  was 
exempt. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    135 


out  of  German  conditions  and  out  of  the  needs  of  the  time. 
These  principles  will  be  considered  under  the  main  heads 
of  "unearned  increment,"  "German  Sozialpolitik,"  and 
"benefit"  in  taxation. 

One  reason  the  "unearned  increment"  concept  has  until 
recently  been  associated  chiefly  with  the  income  from  land 
is  the  fact  that  the  gains  accruing  from  urban  land  holdings 
have  been  extraordinarily  striking.  Especially  true  has  this 
been  in  Germany.^  Until  the  Franco-Prussian  War  Ger- 
many was  predominantly  an  agricultural  country.  But 
after  the  seventies,  as  a  result  of  the  competition  of  Amer- 
ica and  Australasia  in  the  European  market,  the  decline  in 
agricultural  production  set  in,  and  the  wretched  condition 
of  the  peasantry,  especially  in  eastern  Germany,  where  the 
large  estates  prevailed,  began  to  arouse  the  concern  of  the 
statesmen.  Strange  as  it  may  seem,  it  is  to  this  apprehen- 
sion, which  engendered  the  policy  of  fostering  superior 
workmanship  and  commercial  enterprises,  that  the  indus- 
trial awakening  of  Germany  must  be  traced.  This  develop- 
ment followed  hard  upon  the  victory  over  the  French  and 
the  consolidation  of  the  German  Empire.  Rural  districts 
and  villages  rapidly  changed  into  urban  and  industrial  com- 
munities. The  growth  in  urban  population  was  phenomenal. 
The  following  table  shows  something  of  the  increase :  ^ 

*  Dr.  Miquel,  Prussian  Minister  of  Finance  in  1893,  pointed  out  the 
enormous  rise  in  the  value  of  urban  land  in  Germany,  which  he  claimed  had 
appreciated  in  value  more  than  in  England.   Cf.  Adickes,  op.  cit.,  p.  624. 

*  Compiled  from  data  in  the  Statistisches  Jahrbtich  fiir  das  Deutsche 
Reich  (1911),  p.  22,  and  the  Statistisches  Jahrbuch  deutscher  Stddte  (1907), 
p.  44.  The  following  table  (from  Archie  fiir  Soziale  Gesetzgehung  und 
Staiistik,  1893,  p.  433)  shows  the  rapid  rise  of  urban  communities:  — 


Class  of  towns 

1871 

1890 

Number 

Populalion 

Number 

Populalion 

Population  — 
Over  100  000 

8 

75 

529 

1716 

1.968,537 
3,147,272 
4,588.364 
6,086,625 

26 

124 

683 

1951 

6,302,883 
4,500,520 
6,054,629 
5,805,893 

20,000  to  100  000 

6,000  to    20  000 

'  2,000  to      6,000 

136 


THE  TAXATION  OF  LAND  VALUE 


TABLE  SHOWING  THE  INCREASE  OF  POPULATION  IN 
CERTAIN  GERMAN  CITIES 


City 


Berlin 

Gelsenkirchen 
Schoneberg. . 

Bremen 

Hamburg 

Frankfurt 

LUbeck 


Population 


1871 


826,341 

7,820 

3,412 

122,402 

338,974 

113,936 

62,158 


1910 


2,070,695 
169,530 
140,992 
298,736 

1,015,707 
414,598 
116,533 


Percentage 
of  increase 


150.6 
2068.0 
4023.0 
144.1 
199.6 
264.0 
123.4 


For  our  purpose  the  important  fact  to  be  noted  is  that 
this  development  was  accompanied  by  an  even  greater 
appreciation  in  land  value.  For  example,  Dr.  Mangoldt  * 
estimated  that  the  rental  of  occupied  land  in  the  city  of 
Berlin  had  appreciated  as  follows:  — 

1830 17  million  marks 

1840 38  " 

1850 45  " 

1860 229  " 

1870 530  " 

1880 1,042   " 

1890 1,890  " 

1898 2,118  " 

Comparing  the  percentage  of  increase  in  rental  in  Berlin 
from  1870  to  1898,  with  that  of  the  growth  of  population 
as  shown  in  the  table,  it  is  as  285  per  cent  ^  to  150.6  per 
cent.  Or,  take  the  statistics  for  Bavaria.  The  average  rise 
in  the  value  of  the  land  for  the  decade,  from  1897  to  1907, 
was  estimated  at  600  per  cent  for  Bayreuth,  640  per  cent 
for  Kaiserslautem,  976  per  cent  for  Aschaffenberg,  1500 
per  cent  for  Behringserdorf,  etc.    For  a  longer  period  of 

'  Die  stddiische  Bodenfrage,  p.  31. 

*  Were  the  figures  for  1910  available,  the  difference  would  be  even 
more  striking. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    137 

time  —  from  1867  to  1907  —  the  average  increases  in  land 
value  were  as  follows:* 

Mosach 2307  per  cent  Landsbut 6737  per  cent 

Erlangen 2703    "      "  Fiirth 6566    "      " 

Bamberg 3200   "      "  NUmberg 6900   "      " 

WUrzberg 4900   "      "  Kaiserslautern 8900   "      " 

It  is  needless  to  multiply  examples  of  this  common  phe- 
nomenon dealt  with  so  copiously  in  German  Uterature. 
From  the  seventies  to  the  end  of  the  century  was  the  time 
when  peasants,  in  Roscher's  phrase,^  were  transformed 
over-night  into  millionaires  by  virtue  of  their  land  owner- 
ship. 

This  enormous  growth  in  the  value  of  the  land  has 
brought  in  its  train  two  so-called  social  ills;  first,  it  has  ag- 
gravated the  speculation  in  land;  and  secondly,  it  is  held 
responsible  for  the  housing  problem.  Already  in  the  sixties 
and  seventies  speculation  in  urban  land  became  active,  en- 
riching many  even  of  those  who  had  been  bom  serfs;  in 
these  decades  the  "Millionenbauem"  formed  a  distinct 
social  group.'  The  victory  in  1871  and  the  economic 
changes  succeeding  that  year  gave  a  new  impetus  to  land 
speculation.  Realty  and  building  companies  were  formed, 
whose  watered  stock  found  purchasers  on  the  stock  ex- 
change and  whose  purpose  was  by  no  means  the  develop- 
ment of  the  urban  communities.^  There  are  but  few  large 
cities  in  Germany,  it  is  asserted,^  whose  building  opera- 
tions are  not  controlled  by  one  or  more  building  and  realty 
corporations  (Terraingesellschaften).  According  to  Adolph 
Damaschke  ^  there  are  seventy-three  such  corporations  in 
BerUn.    They  are  generally  comprised  of  speculators  who 

*  Kommunales  Jahrbuch  (1909),  vol.  i,  p.  661. 

*  Grundlagen  der  Naiixmalokonomie  (1906  ed.),  p.  261. 

*  Voigt,  Grundrente  und  Wohnungafrage  in  Berlin  und  seinen  Vororten, 
p.  109. 

*  For  their  methods  of  operation  see  ibid.,  pp.  114  Jf. 

*  This  is  the  position  of  the  "Bodenreformer,"  but  is  maintained  also 
by  a  host  of  other  writers. 

*  Jahrbuch  der  Bodenreform  (1907),  vol.  in,  p.  168. 


1S8  THE  TAXATION  OF  LAND  VALUE 

make  a  specialty  of  erecting  tenements  (Mietkasemen) 
in  communities  scarcely  urban.  For  example,  in  Char- 
lottenburg,  Schoneberg,  and  other  more  recently  settled 
communities,  apartment  houses  of  immense  size  were 
erected  long  before  any  need  for  them  appeared.  By  this 
method  and  in  other  ways,  these  corporations  have  suc- 
ceeded in  driving  up  the  market  price  of  land  far  beyond 
what  is  warranted  by  the  law  of  supply  and  demand.* 
Recently,  investigations  public  and  private  have  revealed 
serious  unsanitary  housing  conditions  and  especially  con- 
ditions of  overcrowding.  One  example  must  suffice  hete. 
In  greater  Berlin  600,000  people  live  in  dwellings  in  which 
each  room  is  occupied  by  five  or  more  persons.^ 

Under  these  conditions  the  ethical  justification  of  the 
private  appropriation  of  the  "  unearned  increment "  has  been 
questioned.  With  one  group,  indeed,  the  "Bodenreformer," 
private  property  in  land  has  been  repudiated  altogether; 
with  another  group,  the  "Sozialpolitiker,"  such  restriction 
of  urban  land  ownership  has  been  sought  as  would  enable 
the  community  to  share  the  "unearned  increment."  The 
"justice"  of  this  position  is  based  on  the  fact  that  the  com- 
munity, with  the  concentration  of  population  and  its  in- 
creasing functions  of  government,  not  the  individual  owner, 
creates  the  value  increment;  but  also  on  the  fact  that  social 
expediency  requires  the  restriction  of  ownership  of  urban 
land. 

§  8.  This  policy  of  restriction  which  the  adoption  of  the 
increment  tax  sanctioned  marks  no  radical  change  in  prin- 

^  Eberstadt,  Die  Spekidation  im  neuzeiilichen  StSdtebau;  Cf.  also  Ver- 
handlungen  des  Vereins  fiir  Sozialpolitik  in  Niimberg  (1911),  in  Schriften 
deg  Vereins  fiir  Sozialpolitik,  vol.  cxxxvin,  p.  46. 

'  Soziale  Prams  (1911-12),  vol.  xxi,  p.  666.  For  other  examples  see 
infra,  chapter  ix,  pp.  390-91.  In  the  light  of  this  discussion  the  following 
recent  statement  in  the  Chicago  Daily  Tribune  (June  20,  1913,  p.  16)  is 
interesting:  "A  severe  collapse  in  the  real  estate  and  building  markets 
has  been  averted  only  by  the  concerted  action  of  the  banks.  Overspecu- 
lation  in  flat  buildings  in  Berlin  has  left  the  city  with  80,000  small  flats 
for  which  there  are  no  tenants." 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    139 

ciple.  For  the  development  of  private  property  in  land, 
in  Germany,  bears  the  stamp  of  that  "Sozialpolitik"  — 
social  regulation  —  which  since  the  organization  of  the 
"Verein  ftir  Sozialpolitik"  ^  has  become  the  consciously 
accepted  state  policy.  It  is  true  that  with  the  break-up  of 
the  feudal  system  and  with  the  advent  of  the  capitalistic 
era,  land  became  a  commodity,  subject  to  private  owner- 
ship, in  Germany  as  elsewhere.  There  remained,  neverthe- 
less, a  great  deal  of  communal  land,  the  property  of  the 
states  and  communes.  Especially  in  western  and  south- 
western Germany,  survivals  of  the  old  land  system  are  to 
be  found,  for  example,  in  the  Allmenden  and  Domanen 
(the  commons). 

The  state  in  which  the  public  domain  even  yet  plays  a 
great  r61e  is  Baden,  where  the  revenue  from  the  land  is 
said  to  have  exempted  121  rural  communities  from  all  tax- 
ation.2  jt  jg  furthermore  noteworthy  that  the  largest  cities 
in  Baden  in  the  last  two  decades  have  sought  to  increase 
their  municipal  holdings.  In  Mannheim,  for  instance,  the 
land  owned  by  this  city  constituted,  in  1870,  23  per  cent 
of  the  whole  territory,  in  1905,  36.8  per  cent;  in  1891,  the 
unimproved  land  owned  by  the  community  (excluding  the 
streets)  was  valued  at  about  22  million  marks,  in  1905, 
at  neariy  50  millions,'  an  increase  of  about  127  per  cent. 
The  details  of  the  city's  growth  cannot  be  entered  into 
here.  Suffice  it  to  say  that  from  1890  to  1906,  the  budget 
had  grown  from  2,806,200  marks  to  10,622,860  marks,  and 
that  nearly  sixty  per  cent  of  this  amount  was  in  1906  cov- 
ered by  non-tax  revenue.^  The  other  cities  in  Baden  show 
a  slower  but  similar  development  with  respect  to  their 
land  policy  (Bodenpolitik).  It  is  significant  that  the  seven 

*  Organized  at  Eisenach  in  1872,  the  "Verein  fUr  Sozialpolitik"  has 
exercised  an  unusually  powerful  influence  on  state  legislation. 

*  Damaschke,  Geschichte  der  NcUionaldkonomie  (3  ed.),  p-  363. 

*  Schriften  dea  Vereins  fiir  Sozialpolitik  (1908),  vol.  cxxvi  (Gemeiu- 
definanzen),  p.  140. 

«  Ibid.,  p.  145. 


140  THE  TAXATION  OF  LAND  VALUE 

largest  cities  are  in  possession  of  a  net  capital  value  of  about 
190  million  marks,  more  than  half  of  which  comprises  land 
value.  ^ 

This  "Bodenpolitik,"  moreover,  is  not  peculiar  to  Baden 
alone.  Numerous  German  cities  now  vie  with  one  another 
in  this  policy.^  Many  other  cities  draw  a  considerable 
revenue  from  the  public  lands,  and  many  have  established 
special  funds  to  acquire  more  land.'  Thus,  it  is  very  sig- 
nificant that  in  the  following  cities  more  than  twenty  per 
cent  of  the  land  is  communal:  — 

PERCENTAGE  OF  LAND  (STREETS  AND  ROADS  EXCEPTED) 
WITHIN  THE  CITY  UNDER  PUBLIC  OWNERSHIP* 

•Frankfurt  a.  M. . .  .49. 0  per  cent      Mannheim 32. 4  per  cent 

♦Stettin 45.5    "  "  Darmstadt 30.8   "  " 

♦Kiel 36.4    "  "         Ulm 24.7   "  " 

♦Aachen 36.0   "  "       ♦Breslau 24.5   "  " 

Leipzig 32.7"  "         Stuttgart 23.2"  " 

•Wiesbaden 32.4   "  "         Crefeld 21.0   "  " 

♦Magdeburg 22.6"  "        ♦Hannover 20.7"  " 

♦Recklingshausen...22.5   "  "       ♦Bielefeld 20.5   "  " 

The  states  also  draw  a  considerable  revenue  from  their 
public  lands,  in  pursuance  of  this  policy.  Prussia,  for  ex- 
ample, in  1908,  received  a  net  profit  of  92.27  million  marks 
from  its  forests,  mines  and  other  land.^ 

Under  the  influence  of  this  principle  of  "Sozialpolitik," 
the  legal  restriction  of  land  ownership  has  proceeded  re- 
cently in  Germany  to  an  extent  which,  from  the  stand- 
point of  the  inviolability  of  private  property  rights,  as  con- 
ceived of  in  Anglo-Saxon  countries,  appears  revolutionary. 
We  refer  to  the  law  passed  in  1902  with  respect  to  the  re- 

*  Schriften  des  Vereins  fUr  Sozialpolitik  (1908),  vol.  cxxvi  (Gemein- 
definanzen),  p.  150. 

2  Soziale  Praxis,  vol.  xvii,  pp.  867,  1315;  vol.  xvm,  pp.  957,  1373,  et 
passim. 

*  Statistisches  Jahrbuch  deutscher  Stddte  (1909),  pp.  18,  19. 

*  Kommunales  Jahrbuch  (1909),  vol.  i,  p.  550.  The  asterisk  denotes 
that  the  city  has  adopted  the  tax  on  value  increment. 

'  Statistisches  Jahrbuch  fiir  den  Preussischen  Staai  (1908),  p.  225. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    141 

distribution  (Umlegung)  of  property  in  Frankfurt  a.  M.* 
In  accordance  with  this  law,  it  is  possible  to  redistribute 
property  in  districts  predominantly  undeveloped,  in  case 
the  public  interest  requires  such  readjustment,  either  in 
opening  up  new  building  land  or  in  laying  out  sites  of  suit- 
able shape.'*  The  method  by  which  this  redistribution  takes 
place  is  noteworthy.  All  the  land  in  question  is  massed 
together,  the  land  necessary  for  streets  and  squares  is  then 
marked  off,  and  the  remainder  is  distributed  among  the 
owners  in  portions  proportionate  to  their  interest  in  the 
whole  land;  and  compensation  is  paid  for  any  loss  incurred.' 

In  a  country  where  private  land  ownership  is  subject 
to  restriction  in  so  far  as  the  pubUc  welfare  requires,  the 
introduction  of  the  "Wertzuwachssteuer,"  whereby  the 
German  government  does  not  hesitate  to  recognize  the 
"unearned"  character  of  the  land-value  increment,*  is 
consistent  with  the  general  policy  of  German  "Boden- 
politik." 

§  9.  Compared  with  the  potency  of  the  above-men- 
tioned social  principles  on  the  enactment  of  the  increment 
tax,  the  influence  of  the  principle  of  benefit  in  taxation,  i.e., 
that  the  tax  is  payment  for  services  rendered  by  the  state, 
could  be  of  but  minor  importance.  The  reason  is  clearly 
because  the  system  of  local  taxes  in  Germany  as  we  have 
shown  ^  does  not  lend  itself  to  that  principle.  Nevertheless, 
in  justifying  the  taxation  of  the  "unearned  increment," 
German  writers  have  from  the  first  employed  as  argument 
the  fiscal  principle  of  benefit.   Already  in  1866,  Alexander 

*  Geseiz  vom  28  Jvli  1902,  betr.  die  Umlegung  von  Grundstiicken  in 
Frankfurt  a.  M. 

2  IbU.,  §   1. 
»  JUd.,  §  10. 

*  The  imperial  law  declares  that  the  tax  is  to  fall  on  the  unearned  incre- 
ment ("der  ohne  Zutun  des  Eigentlimers  entstanden  ist").  Reichs- 
zuwachssteuergesetz  vom  H  Februar  1911,  §  1.  In  this  connection  it  is 
interesting  to  point  out  that  in  the  British  Parliament  the  proposal  to 
call  the  increment  unearned  was  promptly  dismissed. 

'  See  suTpra,  p.  122. 


142  THE  TAXATION  OF  LAND  VALUE 

Meyer  contended  ^  that,  more  than  in  the  case  of  other 
commodities,  the  value  of  land  was  created  and  determined 
by  society  and  by  the  governmental  expenditure  for  the 
protection  and  improvement  of  property,  adding  that 
"local  taxes  are  the  basis  of  the  community,  the  community 
the  basis  of  remunerative  labor,  remunerative  labor  the 
basis  of  high  land  value.  Local  taxes  accrue  to  the  land 
owner  to  an  ever  increasing  degree."  Likewise  Wagner  and 
Adickes  defended  the  taxation  of  the  "unearned  increment " 
on  the  ground  that  the  landowner  in  the  city  had  a  special 
advantage,  the  value  of  his  land  being  the  result  of  and 
depending  on  the  development  of  the  state  and  the  com- 
munity.2 

The  influence  of  the  principle  of  benefit  or  compensation 
in  taxation  as  an  argument  for  the  value-increment  tax  in 
Germany  can  be  further  seen  from  the  application,  or  elab- 
oration, of  the  principle  made  by  Koppe.  He  attempts 
to  justify  the  state  and  imperial  taxes  on  value  increment 
as  well  as  the  local  increment  taxes  on  this  ground.  Thus, 
admitting  the  effect  of  the  services  and  expenditures  of 
the  local  government  on  the  value  of  land,  Koppe  reasons 
that  without  a  powerful  central  government,  i.e.,  the  im- 
perial government,  this  beneficent  influence  of  the  commune 
on  real  property  would  be  impossible.  For,  says  he,  all  im- 
perial legislation  is  equally  a  source  of  benefit  to  the  land- 
owner.' 

It  is,  of  course,  evident  that  such  an  application  of  the 
principle  is  untenable  as  the  principle  is  generally  inter- 
preted. For  it  is  only  when  the  benefit  between  government 
and  subject  is  reciprocal,  and  at  least  roughly  measurable, 

1  Preussische  Jahrbucher  (1866),  vol.  xvm,  p.  170.  Cited  by  Adickes, 
op.  cit.,  p.  444. 

*  Verhandlungen  des  Vereins  fiir  Sozicdpolitik  (1877),  in  Sckriften  de» 
Vereins  fiir  Sozicdpolitik  (1878),  vol.  xiv,  p.  16.  C/.  Adickes,  op.  ci^., 
pp.  444,  590,  618/. 

»  "  Das  Schicksal  der  Reichszuwachssteuer,"  in  Annalen  des  deutschen 
Reicha  (1910),  vol.  xliii,  p.  670. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    143 

that  the  principle  of  benefit  applies  at  all.  That  is  why  it 
is  considered  applicable  to  local  taxation,  for  here  the  in- 
cidence of  the  tax  is  more  easily  determined  (under  the 
English  rating  systems,  for  example),  and  the  relation  be- 
tween certain  services  and  local  expenditure  is  more  com- 
mensurable than  between  the  more  general  services  and 
expenditures  of  the  state  and  imperial  governments.  Never- 
theless, Koppe's  attempt  to  justify  the  increment  tax  on 
this  principle  is  noteworthy. 

As  regards  both  the  local  and  imperial  increment  taxes, 
however,  social  causes  operated  more  potently  than  the 
fiscal  principle  of  benefit  in  the  enactment  of  the  tax 
measures.  Additional  factors  which  stimulated  legislation 
were  the  activity  of  the  "Bodenreformer,"  and  in  case  of  the 
imperial  increment  tax  the  fiscal  exigency.^ 

§  10.  For  popularizing  the  principles  underlying  the 
increment  tax,  the  propaganda  of  the  "Bodenreformer" 
(Single  Taxers),  since  their  organization  in  1898,  has  ex- 
erted a  strong  influence.  That  their  organization  came 
later  than  in  England  and  Australasia  was  due  to  the  fact 
that  the  needs  mentioned  above  had  not  become  acute, 
or  made  themselves  felt,  earlier.^  The  widespread  influence 
of  the  "Bodenreformer"  may  be  gathered  from  the  fact 
that  in  1910  the  number  of  societies  was  542,  and  the 
membership  about  750,000  persons,'  Of  course,  the  publi- 
cations of  the  society,  "Die  Bodenreform,"  "Soziale 
Fragen,"  and  the  quarterly,  "Das  Jahrbuch  der  Bodenre- 
form," all  under  the  efficient  leadership  of  Adolph  Dam- 
aschke,  undoubtedly  reach  a  larger  number  of  readers  than 
is  represented  by  the  membership.  On  the  whole,  the  op- 
portunism of  the  leaders  has  directed  the  energy  of  the 

*  See  infra,  §  11. 

*  Of  course,  the  movement  to  tax  urban  land  value  had  started  in  the 
seventies.  Adolph  Wagner  may  well  be  called  the  pioneer  in  that  move- 
ment; earlier  and  contemporaneous  exponents  were  Herman  Gossen, 
Adolph  Samter,  Karl  Arnd,  FlUrscheim  and  Hertzka. 

»  Soziale  Praxis  (1910-11),  vol.  xx,  p.  188. 


144  THE  TAXATION  OF  LAND  VALUE 

society  to  other  reforms  besides  the  tax  on  land  value. 
Thus,  their  activity  has  been  extended  to  obtaining  legis- 
lation with  reference  to  mines,  hereditary  building  lease- 
holds (Erbbaurecht),  housing,  and  to  colonization  work, 
etc.  Then,  too,  their  opportunism  as  regards  the  tax  itself 
has  commended  itself  to  persons  who  are  not  Single  Taxers. 

§  11.  Already  in  1894,  under  the  direction  of  Adickes, 
the  mayor  of  Frankfurt  a.  M,,  a  bill  was  introduced  in  that 
city  to  tax  the  value  increment  of  land,  but  ten  years 
elapsed  before  the  opposition  to  the  measure  was  over- 
come. In  1904,  then,  the  ordinance  was  first  passed  in 
Frankfurt.^  This  started  the  ball  rolling,  for  in  the  following 
year  Cologne  and  Gelsenkirchen  adopted  the  tax.  Then 
followed  in  rapid  succession,  Essen  (1906),  Dortmund 
(1906),  Gross-Lichterfelde  (1906),  Pankow  (1906),  Weissen- 
see  (1906), Breslau  (1907),Hessen  (1907), Kiel  (1907),  Ham- 
burg (1908),  Berlin  (1910),  and  a  host  of  others.  The  num- 
ber of  local  governments  in  Germany  which  had  adopted 
the  tax  before  the  enactment  of  the  imperial  tax  was  652.^ 

The  history  of  the  enactment  of  the  "Reichszuwachs- 
steuer"  is  enlightening.  The  fiscal  stringency  of  the  im- 
perial government  has  received  a  great  deal  of  attention 
from  German  writers.  In  fact,  the  imperial  government, 
in  1909,  had  reached  a  serious  stage  of  fiscal  stress.  The 
growing  budgets,  it  was  felt,  had  to  be  met  by  other  than 
by  additional  income  and  excise  taxes.^  The  "Agrariar," 
the  reactionary  party,  were,  of  course,  opposed  to  any 
further  property  taxes.  Indeed,  so  antagonistic  were  they 
also  to  the  revision  of  the  inheritance  tax,^  that  from  one  of 

^  Although  Frankfurt  is  generally  regarded  as  the  first  city  to  intro- 
duce the  "  Wertzuwachssteuer,"  several  small  communes  in  Saxony, 
Oetzsch  and  Helbersdorf ,  are  said  to  have  taxed  the  value  increment  since 
1902-03.  Cf.  Becher  und  Henneberg,  Das  Zuwachssteuergesetz  torn  IJ^ 
Februar  1911,  p.  viii. 

*  Damaschke,  Oeschichte  der  Naiionalokonomie  (5th  ed.),  P-  649. 

*  Beusch,  Die  Reichsfinanzen  und  die  Steuerreform,  p.  117. 

*  The  proposal  was  to  make  the  tax  fall  on  direct  as  well  as  on  collateral 
hdrs.  CJ.  Linschmann,  Die  Reichsfinanzreform  von  1909,  pp.  123-29. 


[TAX  ON  VALUE  INCREMENT  IN  GERMANY    145 

their  own  members  on  the  Finance  Committee  came  the 
proposal  of  substituting  the  "  Wertzuwachssteuer"  on 
securities  (Wertpapiere)  and  land  transfers  for  the  pro- 
posed revisions  in  the  inheritance  tax.^  After  extended  dis- 
cussion in  the  committee  the  "Wertzuwachssteuer"  was 
rejected  by  the  government,  on  the  ground  that  the  great 
practical  difficulties  involved  in  the  tax  required  a  more 
carefully  prepared  bill.^  Instead,  a  slight  tax  on  land  trans- 
fers, one  third  of  one  per  cent  of  the  selling  price,  was  im- 
posed, while  the  partisans  of  the  increment  tax  succeeded 
in  inserting  in  the  same  bill  ("  Reichsstempelgesetz,"  1909) 
the  following  provision:  ' 

"  Before  April  1,  1912,  an  imperial  tax  on  the  unearned 
increment  of  land  shall  be  enacted,  which  shall  be  so  reg- 
ulated as  to  produce  an  annual  revenue  of  at  least  20  mil- 
lion marks.  .  .  .  The  bill  shall  provide  that  to  those  local 
governments  where  the  increment  tax  was  in  force  on 
April  1,  1909,  the  average  yield  of  the  tax  shall  be  turned 
over  for  a  period  of  not  less  than  five  years  after  the  en- 
forcement of  the  imperial  tax.  Such  a  bill  shall  be  sub- 
mitted to  the  Reichstag  before  April  1st,  1911." 

In  accordance  with  this  provision  the  "  Reichszuwachs- 
steuer"  was  passed  February  14,  1911. 

It  is  important  to  note  that  with  the  enactment  of  the 
imperial  increment  tax,  the  local  and  state  taxes  were  re- 
pealed, except  in  so  far  as  the  local  bodies  retained  the  op- 
tion of  levying  additional  rates  to  the  imperial  tax.* 

*  The  Social  Democrats  accused  the  conservative  proponents  of 
the  increment  tax,  in  preference  to  the  inheritance  tax,  of  selfish  mo- 
tives, since  the  increment  tax  would  fall  chiefly  on  urban  landowners. 
Cf.  Koppe,  "Das  Schicksal  der  Reichszuwachssteuer "  in  Anna  lendet 
deutschen  Reichs  (1910),  vol.  XLm,  p.  674. 

*  Cf.  Koppe,  op.  cit.,  p.  673. 

*  Reichsstempelgesetz  vom  15  Juli  1909,  §  70. 

*  Reichszuwachssteuergesetz  vom  11  Februar  1911,  §  59.  Cf.  infra,  §  16. 
By  the  amendment  of  the  law  in  1913,  the  revenue  accruing  from  the 
"Wertzuwachssteuer"  was  relegated  entirely  to  the  states  and  local  au- 
thorities. It  is,  therefore,  an  imperial  tax  in  form  only.   Sea  infra,  §  21. 


146  THE  TAXATION  OF  LAND  VALUE 

§  12.  Because  of  the  suspension  of  the  increment  tax 
laws  for  local  and  state  purposes,  we  shall  first  analyze  the 
imperial  law  and  then  compare  the  same  with  the  provi- 
sions of  the  antecedent  measures.  The  provisions  of  the 
"Reichszuwachssteuergesetz"  will  be  studied  under  the 
following  heads :  — 

(1)  The  method  of  assessment  and  levy. 

(2)  The  exemptions. 

(3)  The  scale  of  rates. 

(4)  The  division  of  the  revenue  among  the  imperial, 
state,  and  local  governments. 

(5)  The  administration  of  the  tax. 

By  far  the  most  important  provisions  of  the  law  and 
those  involving  the  most  perplexing  problems  of  theory  and 
practice  are  those  relating  to  the  object  taxed  and  the 
mode  of  assessment.  "  On  the  occasion  of  a  transfer  of  land 
lying  within  the  country  there  shall  be  levied  in  accordance 
with  the  provisions  of  this  Act  a  tax  on  the  value  increment 
which  has  accrued  through  no  effort  on  the  part  of  the 
owner  (der  ohne  Zutun  des  Eigentumers  entstanden  ist)."  ^ 
For  practical  purposes  this  criterion  of  the  taxable  object, 
"  unearned  increment,"  is  of  no  importance,  since  the  Act 
later  defines  specifically  the  method  of  assessment.^  The 
section  has,  however,  given  rise  to  much  legal  controversy 
involving  the  validity  of  the  Act.' 

"The  difference  between  the  previous  purchase  price 
and  the  present  selling  price  shall  constitute  the  taxable 
value  increment."  *  In  order  that  the  tax  may  fall  only  on 
the  increment  accruing  from  land  value,  not  on  improve- 
ments, certain  deductions  from  the  price  of  the  property  are 
stipulated.  Thus,  the  amount  of  encumbrances  assumed  by 
the  seller,  the  cost  of  the  machine  equipment  and  other 

*  Reichszuwachssteuergesetz  vom  19  Februar  1911,  §  1. 
2  Ibid.,  §§  8-23. 

*  Cf.  Amtliche  Mitteilungen  iiber  die  Zuwachssteuer,  Jg.  1912,  Nr.  8, 
pp.  133,  200. 

*  Reichszuwachssteuergesetz,  §  8. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    147 

fixed  capital,  and  also  the  value  of  the  growing  crops  are 
to  be  deducted  from  both  the  purchase  and  selling  prices.* 
But  that  is  not  all.  All  outlays  for  improvements  and  other 
expenditures  incurred  on  the  taxable  land  must  be  taken 
into  account.  Hence  the  previous  purchase  price  and  pres- 
ent selling  price  must  undergo  the  following  modifications 
before  the  taxable  value  can  be  computed:  — 

(a)  To  the  previous  purchase  price  shall  be  added  i^ 

(1)  Four  per  cent  of  the  purchase  price  to  cover  outlays 
incurred  by  the  transaction  of  sale,' 

(2)  Expenditures  for  buildings,  repairs,  and  other  per- 
manent improvements,  including  such  as  have  to  do  with 
agriculture  and  forestry;  expenditures  also  for  exploration 
and  permanent  equipment  in  mining;  *  and  five  per  cent 
additional  of  the  calculable  value  of  these  expenditures,  or, 
if  the  seller  is  a  builder  or  a  building  workman  and  has 
himself  erected  the  buildings,  fifteen  per  cent  additional.'' 

(3)  Expenditures  and  special  assessments  for  public 
utilities  and  improvements  incurred  in  the  period  of  time 
for  which  the  tax  is  calculated.  Interest  shall  be  allowed, 
calculated  at  four  per  cent  of  the  expenditures  for  every 
complete  year  of  this  period,  not  to  exceed  fifteen  years.' 

(4)  Two  and  one-half  per  cent  interest  on  the  total 
amount  of  the  purchase  price  (i.e.,  the  above  additions, 
(1),  (2)  and  (G)  included),  so  far  as  this  amount  does  not 
exceed  100  marks  per  are  (100  square  metres),  or  in  case  of 

^  Reichszuwachssteuergesetz,  §  10.  *  Ibid.,  §  14. 

*  In  case  a  higher  commission  was  paid  by  the  purchaser,  the  latter 
amount  shall  be  substituted. 

*  These  expenditures  have  no  reference  to  such  as  were  noted  under 
fixed  capital  expenditures,  nor  serve  for  the  current  maintenance  of 
structures,  nor  for  the  current  utilization  of  land,  so  far  as  the  buildings 
and  improvements  shall  still  exist.  Moreover,  if  the  expenditiu-es  are  cov- 
ered by  insurance  they  are  not  deductible.    Ibid.,  §  14  (3). 

*  This  does  not  apply  if  the  builder  is  a  company,  or  association  not 
composed  exclusively  of  building  contractors  or  building  workmen. 

'  On  demand  of  the  seller,  instead  of  this  interest  addition,  there  may 
be  substituted  an  amount  equal  to  the  addition  under  (4)  or  (5),  etc 
Ibid..  §  14  (4). 


148  THE  TAXATION  OF  LAND  VALUE 

vineyards  300  marks  per  are,  for  every  year  since  the  last 
transfer  of  the  property.^ 

(5)  Two  per  cent,  in  case  of  unimproved  land,  one  and 
one-half  per  cent,  in  case  of  improved  land  (for  every  year 
since  the  last  transfer  of  the  property)  of  the  differential  • 
between  the  actual  purchase  price  plus  additions  and  the 
calculated  value  in  (4).  If  not  more  than  five  years  have 
elapsed  since  the  last  transfer,  the  addition  in  case  of  the 
unimproved  land  shall  be  reduced  by  one-half.  ^ 

(6)  In  case  the  property  had  been  acquired  at  a  bankrupt 
sale  by  the  mortgagee,  then  the  amount  of  his  defaulted 
claims  or  losses  incurred  by  him  may  be  added.' 

(6)  To  ascertain  the  value  increment,  furthermore,  there 
shall  be  deducted  from  the  present  selling  price:  * 

(1)  The  cost  of  sale  and  conveyance  if  incurred  by  seller 
(the  commission  customary  in  the  locality  included). 

(2)  Upon  demand  of  seller,  that  amount  by  which  (for 
every  year  since  the  last  transfer  but  not  for  more  than 
fifteen  consecutive  years)  the  annual  income  from  the  land 
can  be  showTi  to  have  been  less  than  three  per  cent  of  the 
previous  purchase  price  plus  additions  [(1),  (2),  and  (6)] 
noted  above. 

(c)  Furthermore,  to  the  selling  price  shall  be  added:  '^ 

(1)  Any  compensation  paid  the  seller  for  any  deprecia- 
tion in  the  value  of  the  land.^ 

(2)  The  amount  of  the  increment  tax  if  the  purchaser, 
instead  of  the  seller,  had  agreed  in  the  contract  of  sale  to 
pay  the  tax.' 

§  13.  Before  discussing  the  purpose  of  the  additions  and 
reductions,  a  concrete  illustration  of  the  method  of  pro- 
cedure in  computing  the  taxable  value  will  help  elucidate 
the  complex  system.  Suppose  a  parcel  of  unimproved  land, 

^  Reichszuwachssteuergesetz,  §  16  (1),  *  Ibid.,  §  16. 

»  Ibid.,  §  14  (2).  *  Ibid.,  §  22.  »  IMd.,  §  23. 

•  §  23.  Provided  that  the  claim  for  such  compensation  has  arisen 
since  January  1, 1911,  and  provided  it  is  proved  that  the  amount  has  not 
been  expended  for  the  repair  of  the  property. 

^  Ibid.,  §24. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    149 

10,800  arey  was  bought  in  1893  for  1,000,000  marks.  A 
house  worth  400,000  marks  was  constructed  thereon,  and 
the  property  was  sold,  January,  1,  1913,  for  2,600,000 
marks.  Suppose  further  that  the  income  averaged  50,000 
marks  annually,  except  during  1906-10,  when  it  averaged 
only  30,000  marks.  The  method  of  ascertaining  the  amount 
of  increment  tax  is  as  follows:  — 

(o)  Previous  purchase  price 1,000,000  mk. 

To  which  is  added :  ^ 

(1)4  per  cent  of  purchase  price 40,000  mk. 

(2)  Cost  of  building 400,000  mk. 

Plus  5  per  cent  interest 20,000  mk. 

(3)  (No  expenditure  made  or  special  as- 

sessment paid) 

(4)  2j  per  cent  for  twenty  years  of  the 

value  of  the  land  calculated  thus: 
100  mk.  X  10,800  are  =  1,080,000 
mk.  2 J  per  cent  of  1,080,000  mk.  .540,000  mk. 

(5)  li  per  cent  for  twenty  years  on  (the 

difference  between  1,440,000  and 

1,080,000  mk.)  360,000  mk 108,000  mk. 

Total  additions 1,108,000  mk. 

Total  purchase  value 2,108,000  mk. 

(6)  Present  selling  price 2,600,000  mk. 

From  this  sum  shall  be  deducted:  — 

(1)  Cost  of  transaction 5,000  mk. 

(2)  Amount  of  deficit  in  income  (1906- 

10)  for  five  years:  43,200 •  mk.  (3 
per  cent  of  1,440,000  mk.)  —  30,000 
mk.  =  13,200  mk.  X  5 66,000  mk. 

Total  deductions 71,000  mk. 

Selling  price 2,529,000  mk. 

\  Deducting  total  purchase  price .2,108,000  mk. 

Value  increment  (=  19.9  per 

cent  of  total  purchase  price.) 421,000  mk. 

Rate  of  tax  ^  is  11  per  cent. 

Amount  of  tax  11  per  cent  of  421,000  mk.  . .      46,310  mk. 

Deductions  (§  28,  2)*  li  per  cent  for  twenty 

years 13,893  mk. 

Tax  collectible 32,417  mk. 

*  The  items  correspond  to  the  additions  referred  to  in  the  preceding 
section  and  are  numbered  as  they  were  there. 
'  See  injra,  §  15,  for  explanation  of  rate  and  reduction. 


150  THE  TAXATION  OF  LAND  VALUE 

Obviously  the  purpose  of  the  allowances  noted  above  is 
to  reach  the  "unearned  increment"  and  to  exempt  any 
increment  in  value  which  is  attributable  to  the  investment 
of  capital  and  labor.  How,  then,  has  this  purpose  suc- 
ceeded? 

First,  as  regards  the  additions  to  the  original  purchase 
price,  the  expediency  and  equity  of  adding  the  various 
sums  of  cost  and  compensation  to  the  previous  purchase 
price  or  of  deducting  them  from  the  seUing  price  gave  rise 
to  much  discussion  in  the  Finance  Committee.^  Before 
pointing  out  the  principles  involved,  it  will  be  necessary  to 
show  by  a  concrete  example  the  difference  in  receipts  which 
the  two  methods  produce.  If,  in  the  case  assumed  above, 
the  1,108,000  marks  expenditure  and  compensation  were 
substracted  from  the  selling  price,  2,529,000  marks,  in- 
stead of  being  added  to  the  purchase  price,  the  value  incre- 
ment would  again  be  421,000  marks,  to  be  sure;  ^  but,  now, 
the  previous  purchase  price  would  be  1,000,000  marks,  of 
which  421,000  marks  are  42.1  per  cent.  This  change  would 
subject  the  value  increment  to  a  higher  tax  rate,  twelve 
per  cent  instead  of  eleven  per  cent  in  this  case;  hence  the 
revenue  would  be  greater.  Various  writers  have  pointed 
out  that,'  not  alone  for  fiscal  reasons,  but  likewise  in  ac- 
cordance with  the  principles  of  the  tax,  the  method  fol- 
lowed in  the  imperial  law  is  reprehensible.  The  only  prac- 
tical way  to  ascertain  the  pure  "unearned  increment" 
accruing  from  land  is  to  deduct  the  value  of  the  improve- 
ments from  the  selling  value  of  the  property,  allowing  for 
its  depreciation;  this  the  law  does  not  do.  Moreover,  it 
furnishes  the  speculator  an  escape  from  an  otherwise  heavy 
burden,  for  in  Germany  the  land  speculator  and  building 

*  Cf.  C.  Miller,  Reichsgesetz  iiber  die  Zuwachssteuer,  p.  40. 

*  As  a  matter  of  fact  the  value  of  the  buildings  at  the  time  of  sale 
would  probably  be  less  than  its  original  cost,  and  when  deducted  from 
the  selling  price  would  make  the  value  of  the  increment  on  which  the 
tax  is  chargeable  still  greater. 

»  Cf.  Boldt,  Die  Wertzuwachssteuer,  p.  57;  KSppe,  op.  cU.,  pp.  722/. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    151 

operator  are  in  the  main  one  and  the  same  person.  Thus 
the  "Terraingesellschaften"  that  erect  the  huge  apart- 
ment houses  (Mietskasernen)  to  further  their  speculative 
operations  ^  could  frustrate,  in  a  measure,  the  purpose  of 
the  tax.  For,  the  excessive  cost  of  the  buildings  when  added 
to  the  original  purchase  price  of  the  land  would  lessen  the 
value  increment  on  which  the  tax  is  payable. 

Secondly,  there  is  no  provision  in  the  Act  to  deduct  any 
depreciation  in  the  value  of  the  improvements  which  con- 
stituted part  of  the  original  purchase  price.'^  For  example, 
suppose  a  house  and  lot,  valued  respectively  at  400,000 
marks  and  500,000  marks  were  sold  in  1885,  and  sold 
again  in  1910  for  1,000,000  marks.  Suppose  the  house  had 
deteriorated,  was  valueless,  and  was  ready  to  be  torn  down. 
What  in  such  a  case  shall  be  considered  the  value  incre- 
ment, 100,000  marks  or  500,000  marks?  Under  the  im- 
perial law  the  original  purchase  price  is  900,000  marks  and 
the  increment  value  only  100,000  marks.  It  is  clear  that  in 
accordance  with  the  principle  and  definition  of  the  tax  on 
land  value,  the  value  only  of  those  improvements  that  are 
unexhausted,  and  to  the  extent  that  a  value  still  attaches 
to  them,  shall  be  included  in  the  original  purchase  price. 
In  this  respect,  although  the  question  was  discussed  in  the 
Committee,  the  Committee  granted  the  landowners  a  con- 
cession, disregarding  the  principle  involved. 

Thirdly,  the  expediency  and  justice  of  some  of  the  al- 
lowances have  been  questioned.  What  is  the  "fair"  in- 
terest or  compensation  to  be  allowed  the  seller  on  his  invest- 
ment? The  question  cannot  be  answered  absolutely;  but 
let  us  note  the  possible  effect  of  the  allowance  under  the 

*  See  supra,  §  7.   Cf.  Voigt,  op.  cH. 

'  Under  the  local  systems,  only  that  of  Dortmund  recognizes  this 
principle.  The  Dortmund  ordinance  provides  that  in  case  of  brick 
houses,  which  deteriorate  quickly,  three  per  cent  of  the  expenditures  for 
the  buildings  shall  be  deducted,  for  depreciation.  Cf.  Boldt,  Das  Interesse 
als  Grundlage  der  Gemeindebesteuerung,  in  Schrifien  des  Vereina  fiir  Sozial' 
jfolitik,  vol.  cxxvii,  p.  119. 


152  THE  TAXATION  OF  LAND  VALUE 

imperial  law.  An  income  of  at  least  three  per  cent  is  as- 
sured the  owner  of  the  property.^  Inasmuch  as  improved 
land  and  even  agricultural  land,  generally  speaking,  yields 
a  greater  profit  than  three  per  cent,  this  provision  favors 
especially  the  owner  of  unimproved  land  and  the  speculator. 
As  Koppe  points  out,^  for  holding  a  parcel  of  land  worth 
100,000  marks  out  of  use  for  a  period  of  fifteen  years  (land 
which  yields  no  income),  a  reduction  of  45,000  marks  ^  will 
be  made  from  the  selling  price,  thus  reducing  the  amount 
of  the  tax.  And,  inasmuch  as  income  bears  the  greatest 
burden  of  taxation  in  Germany,  this  same  owner  of  vacant 
land  is  subjected  to  the  least  taxation;  hence  speculation 
in  vacant  land,  in  spite  of  the  increment  tax,  is  profit- 
able and  is  furthered.  Again,  it  is  noteworthy  that  in  al- 
lowing two  and  one-half  per  cent  interest  in  case  of  agri- 
cultural land,  and  two  per  cent  of  the  excess  ^  (if  more  than 
five  years  have  elapsed  since  the  last  transfer  of  the  land) 
in  case  of  unimproved  land,  and  one  and  one-half  per  cent 
in  case  of  improved  land,  the  vacant  land  held  for  a  long 
period  has  the  advantage  over  the  improved  land.  The 
expediency  also  of  allowing  five  per  cent  interest  on  the  cost 
of  the  permanent  improvements,  as  compensation  for  di- 
recting and  overseeing  these  improvements  has  been  ques- 
tioned. In  case  the  owner  is  himself  the  builder,  there  is 
some  reason  for  compensating  him,  but  not  to  fifteen  per 
cent  of  the  expenditure. 

Such,  then,  are  some  of  the  diflBculties  encountered  in 
attempting  to  ascertain  the  "unearned  increment"  accru- 
ing from  land. 

§  14.  That  the  taxation  of  value  increment  is  not  ruth- 
lessly carried  out  is  furthermore  evident  from  an  examina- 
tion of  the  exemptions.  Improved  land  whose  selling  price 
is  not  above  20,000  marks  and  unimproved  land  not  ex- 

1  Keppe,  op.  cit.,  p.  726.  »  Ibid. 

»  Three  per  cent  of  100,000  marks  X  15. 
*  Cf.  supra,  pp.  147-48. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    153 

ceeding  5,000  marks  are  exempted  from  the  tax.^  But  the 
exemption  is  allowed  only  in  case  the  income  of  the  hus- 
band and  wife  had  not  exceeded  2000  marks  the  year  previ- 
ous to  the  sale  of  their  property,  and  provided  neither  was 
engaged  in  realty  operations  as  a  business.  ^  Transfers  of 
land  by  inheritance  or  gift  are  not  subject  to  the  increment 
tax,'  unless  the  latter  form  of  transfer  is  to  evade  the  pay- 
ment of  the  tax.  It  is  necessary  to  point  out  here  that 
properties  exchanged  between  owners  are  taxable,  each 
parcel  of  property  being  separately  assessed  and  taxed.* 
An  important  provision  is  that  which  makes  the  transfer 
of  rights  in  the  property  of  partnerships  and  companies  *• 
liable  to  increment  tax,  so  far  as  the  property  is  composed 
of  land,  and  the  utilization  of  the  land  is  one  of  the  objects 
of  the  company,  or  if  the  company  has  been  formed  to 
evade  the  tax. 

Other  exemptions  under  the  Act  are:  • 

(1)  The  sovereigns  of  the  separate  states  (der  Landes- 
flirst  und  die  Landesfiirstin). 

(2)  The  imperial  government. 

(3)  The  states  and  conmaimes  within  whose  jurisdiction 
the  land  is  located. 

(4)  Societies  of  all  sorts  which  are  not  profit-making, 
for  example,  charitable  institutions,  internal  colonization, 
loan  and  building  societies  in  the  interest  of  the  poorer 

*  Reichszuwachasteuergesetz,  §  1.  "  Unimproved  land  shallinclude  also 
land  upon  which  there  are  gardenhouses,  sheds,  lumber  and  coal  yards, 
and  similar  structures  serving  temporary  purposes." 

'  It  is  noteworthy  that  no  minimum  exemption,  such  as  is  found  in 
the  local  Acts  is  allowed  under  the  imperial  Act.  In  Frankfurt  a.  M.,  it 
will  be  recalled,  a  value  increment  of  less  than  fifteen  per  cent  of  the  pur- 
chase price  is  exempted.   For  changes  in  the  provision  see  infra,  §  21. 

•  Reichszuwachssteuergesetz,  §  7  (1).  Such  property  is  subject  to  taxa- 
tion imder  the  "Reichserbschaftssteuergesetz"  of  June  3,  1906.  It  will 
be  remembered  also  that  such  exchanges  are  not  taxable  imder  most  of 
the  "  Umsatzsteuem  "  in  Prussia. 

*  Ibid.,  §  26, 

^  Ibid.,  §  3.  This  does  not  apply  to  corporations  (Aktiengesellschaften). 

•  Ibid.,  §  30. 


154  THE  TAXATION  OF  LAND  VALUE 

classes,  provided  the  dividends  distributed  do  not  exceed 
four  per  cent  of  the  invested  capitaL  ^ 

(5)  Property  owned  jointly  by  married  persons,  in  case 
of  the  establishing,  altering,  continuing,  or  dissolving  of 
such  ownership.^ 

(6)  Property  acquired  through  contracts  concluded  be- 
tween co-heirs  for  the  purpose  of  dividing  an  estate,  or  ac- 
quired by  purchase  at  auction  for  the  same  purpose.' 

(7)  Property  acquired  by  descendants  from  parents, 
grandparents,  and  more  distant  progenitors. 

(8)  Property  acquired  by  a  company  composed  exclu- 
sively of  the  seller  and  his  descendants.* 

(9)  Parcels  of  land  exchanged  for  purposes  of  rearrange- 
ment or  redistribution  (Zusammenlegung  und  Umlegung) 
by  the  public  authority;  or  in  exercising  the  right  of  emi- 
nent domain  in  respect  to  forest  land. 

(10)  Mineral  land,  in  case  of  an  exchange  of  parts  of 
fields  between  adjoining  mines,  and  in  case  of  a  merger  for 
the  purpose  of  the  better  working  of  the  mines,  but  not  if 
the  merger  is  effected  to  evade  the  tax. 

(11)  Mortgages  in  bankrupt  sales,  to  the  value  of  the 
mortgages.^ 

(12)  An  increment  tax  which  does  not  exceed  twenty 
marks  in  amount.^ 

The  purposes  of  these  exemptions  are  clearly:  (1)  to 
guard  against  appropriating  an  increment  attributable  to 
labor  or  capital  invested,  as  the  increment  accruing  to  the 
small  owner  is  likely  to  be;  and  (2)  not  to  interfere  with  ex- 
changes and  the  acquisition  of  property  that  take  place  for 
other  reasons  than  profit-making  as  in  the  case  of  sale.  As 

*  The  Bundesrat  is  empowered  to  exempt  such  societies  even  if  the 
dividends  are  at  most  five  per  cent. 

*  Reichszuwachssteuergesetz,  §  7  (2).  *  Ihid.,  §  7  (3). 

*  Ibid.,  §  7  (5).  "The  obligation  to  pay  a  tax  shall  arise  if  subsequently 
the  company  is  made  to  include  a  member  who  is  not  a  descendant  of 
the  seller." 

,    6  Ibid.,  §  14  (2).  •  Ihid.,  §  28. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    155 


the  tax  is  an  indirect  levy,  it  is  reasoned,  the  tax  for  this 
exempted  property  is  merely  postponed  to  such  time  as  it 
will  be  sold. 

§  15.  The  next  important  consideration  in  the  analysis 
of  the  imperial  tax  is  the  progressive  scale  of  rates.  The 
principle  of  progressive  taxation  seems  well  estabUshed  in 
Germany.  It  is  recognized  in  the  levy  of  the  income  and 
inheritance  taxes  as  well  as  in  the  increment  tax,  and  is 
consistent  with  their  predilection  for  the  faculty  principle 
in  taxation.  In  the  following'table  the  progressive  sched- 
ule of  rates  for  the  increment  tax  is  shown :  ^ 

10  per  cent  tax,  if  the  increment  does  not  exceed  10  per  cent  of  the 

purchase  price 

11  per  cent  tax,  if  the  increment  is  between    10-30    per  cent  inclusive 

12  "      "      "     "    " 

lO       <<  «  <<  M        « 

14  "      "      ♦ 

15  "      "      "     "    " 
10    <<      <<      <<     «    « 

17  "  "      "     "  " 

18  "  "      "     "  " 

19  "  "      "     "  " 

20  "  '  " 

81  "  "      "     "  " 

aa     '*        ««        "       "     " 

23  "  "  "  "  " 

24  "  "  "  "  " 

25  "  "  "  "  " 

26  ' "  " 

27  "  "  "  "  " 

28  "  "  "  "  " 

29  "  "  "  "  " 

30  "  "  "  "  " 


"         "        " 

30-50 

"          "         " 

50-70 

«                   «                 <4 

70-90 

«                   «                 « 

90-110 

«                   «                « 

110-130 

«                   «                « 

130-150 

It                   «                « 

150-170 

«                      «                  C< 

170-190 

«                    «                4< 

190-200 

(4                   44                 44 

200-210 

44                   44                 44 

210-220 

44                    44                44 

220-230 

44                    44                44 

230-240 

44                   44                 44 

240-250 

44                    44                44 

250-260 

44                    44                44 

260-270 

44                   44                 44 

270-280 

44                    44                 44 

280-290 

"         exceeds 

290 

Thus,  for  example,  the  tax  is  ten  per  cent  of  the  value  of 
the  increment,  when  the  increment  does  not  exceed  ten 
per  cent  of  the  previous  purchase  price.  Under  purchase 
price,  it  will  be  remembered,  the  additions,  comprising 
compensation  and  expenditure,  are  included.^ 

Furthermore,  it  is  provided  that  for  every  full  year  since 
the  date  of  the  previous  purchase,  the  tax  shall  be  reduced 
by  one  per  cent  of  its  amount.   But  if  the  land  has  been 

*  Reichszuwachssteuergesetz,  §  28.  *  See  supra,  pp.  147  ff. 


156  THE  TAXATION  OF  LAND  VALUE 

acquired  prior  to  January  1,  1900,  the  rebate  shall  be  in- 
creased to  one  and  one-half  per  cent  annually  from  the  time 
of  the  purchase  until  January  1,  1911.^  For  example,  as- 
sume that  the  tax  is  2300  marks,  the  date  of  purchase  1902, 
the  date  of  sale  1912,  then  ten  per  cent  (one  per  cent  for 
ten  years)  is  to  be  deducted,  leaving  2070  marks  payable; 
now,  had  the  date  of  the  previous  purchase  been  1891,  the 
deduction  would  have  been  thirty  per  cent  (one  and  one- 
half  per  cent  for  twenty  years)  leaving  as  tax  1610  marks. 

This  scale  of  rates  and  the  reductions  were  adopted  out 
of  a  number  submitted  to  the  Finance  Committee,  ^  the 
controversy  being  centered  chiefly  on  the  reductions.  Al- 
ready in  some  of  the  local  measures,'  a  difference  in  the 
amount  of  tax  chargeable  was  made,  based  upon  the  length 
of  ownership.  The  longer  the  period  of  ownership,  the 
smaller  the  amount  of  tax.  This  practice,  although  it 
favors  such  property  as  that  of  the  "  Millionenbauern " 
(the  millionaire  peasants),  a  class  whose  wealth  is  clearly 
"unearned,"  has  been  justified  on  the  following  grounds: 
First,  it  is  assumed  that  persons  who  hold  their  land  for  a 
long  period  of  time  have  not  speculative  motives  in  view. 
Secondly,  the  person  who  has  reaped  a  fortune  in  a  short 
period  of  time  is  better  able  to  share  it  with  the  govern- 
ment than  one  who  has  waited  a  long  time  for  such  gain 
and  has  worked  the  land  for  a  livelihood.*  Thirdly,  it  is  a 
means  of  compensating  for  a  change  in  the  value  of  money, 
through  a  long  period  of  time,  since  no  accoimt  of  such 
change  is  taken  in  computing  the  taxable  increment.  Curi- 
ously, however,  this  assumes  a  falling  value  of  the  stand- 
ard, and  would  not  apply  for  a  period  of  a  rising  value. 

In  connection  with  the  above  problems  involved  in  dis- 

*  Reichszuwachssietiergesetz,  §  28. 
«  Cf.  Koppe,  op.  cit.,  pp.  728-80. 

*  See  infra,  §  19. 

*  To  be  consistent  with  this  argument  a  distinction  should  have  been 
drawn  between  improved  and  unimproved  land.  Such  a  distinction  is 
made  in  some  of  the  local  laws. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY  157 

tributing  the  burden  of  the  increment  tax  equitably,  the 
retroactive  character  of  the  imperial  tax  needs  considera- 
tion. The  previous  occasion  from  which  the  purchase  price 
is  determined,  under  the  imperial  law,  antedates  the  enact- 
ment of  the  law;  hence  the  value  increment  which  had  ac- 
crued prior  to  the  Act  is  taxable.  But  it  is  also  provided  * 
that,  (1)  in  case  the  previous  purchase  took  place  forty 
years  before  the  occasion  of  paying  increment  tax,  the 
value  which  the  property  had  forty  years  before  such  oc- 
casion shall  be  substituted  for  the  previous  purchase  price, 
unless  the  person  liable  for  the  tax  shall  prove  that  the 
previous  purchase  price  had  a  greater  value  than  on  the 
assumed  arbitrary  date;  (2)  in  case  the  previous  purchase 
price  antedated  January  1,  1885,  the  value  which  the  land 
had  on  that  day  shall  be  substituted  for  the  purchase  price, 
unless  the  taxpayer  shall  prove  that  he  paid  a  higher  price 
than  the  land  was  worth  on  January  1,  1885. 

It  will  be  noted:  (1)  From  the  fiscal  standpoint,  the  re- 
troactive feature  of  the  tax  is  more  expedient  than  if  only 
the  future  value  increment  were  taxed.  (2)  By  limiting  the 
period  to  forty  years,  property  held  under  long  tenure  is 
favored  for  reasons  discussed  above.  (3)  The  arbitrary 
previous  purchase  value  is  a  fictitious  one,  to  be  estimated 
"  nach  dem  gemeinen  Wert  ";  ^  that  is,  according  to  "the 
selling  or  capital  value,  determined  by  the  price  which 
would  be  realized  in  customary  business  transactions  ac- 
cording to  the  condition  of  the  salable  property,  and  irre- 
spective of  any  unusual  or  solely  personal  considerations." 
(4)  The  expediency  of  fixing  January  1,  1885,  has  been 
questioned;  first,  because  land  had  appreciated  greatly 
before  1885,  and  there  is  no  reason  why  the  value  incre- 
ment which  accrued  before  that  date  should  not  be  equally 
subject  to  the  tax;  secondly,  because  it  is  more  diflScult  to 
ascertain  the  value  of  the  land  for  1885  than  it  would  be 

*  Reichszuwachssteuergesctz,  §  17. 

*  Zuwachssteuer  Ausfuhrungsbestimmungen  (1911),  §  22. 


158  THE  TAXATION  OF  LAND  VALUE 

for  such  a  date  as  1870,  for  example,^  when  land,  generally 
speaking,  had  an  agricultural  value  merely. 

§  16.  In  view  of  the  fact  that  the  scale  of  rates  under  the 
imperial  law  is  different  and  in  some  cases  lower  than  under 
the  local  systems,  the  consideration  of  the  suspension  of 
the  local  and  state  laws  is  important.  With  the  enforce- 
ment of  the  imperial  law,  on  January  1, 1911,^  the  statutes 
of  the  states  and  of  the  local  bodies  relative  to  the  increment 
tax  became  null  and  void,  except  in  special  cases  where  the 
local  tax  might  continue  to  be  levied  until  April  1,  1915.' 
That  the  revenue  accruing  to  the  local  bodies  from  the  in- 
crement tax  might  be  assured,  however,  the  following  allo- 
cation of  the  revenue  among  the  several  governing  bodies 
was  made.  Of  the  proceeds  of  the  "Reichszuwachssteuer" 
fifty  per  cent  was  to  accrue  to  the  federal  government,  ten 
per  cent  to  the  states  in  payment  for  the  administration 
and  levy  of  the  tax,  and  the  remaining  forty  per  cent  to  the 
local  bodies  in  whose  jurisdiction  the  land  subject  to  the 
tax  was  located.  In  case  of  any  community  where  the  tax 
had  been  in  force  before  January  1,  1911,  and  whose  aver- 
age revenue  from  the  tax  had  exceeded  the  quota  now 
assigned  to  it  by  the  imperial  government,  the  imperial 
government  was  to  pay  such  community  the  difference 
until  April  1,  1915.'*  Instead  of  paying  this  difference  in 
the  manner  described,  however,  the  communities  might 
continue  to  levy  their  own  tax,  subject  to  the  regulations 
of  the  Chancellor,  until  April  1,  1915,  provided  the  same 
average  amount  was  raised  by  the  local  government  as 
before  April  1,  1911,  any  excess  going  to  the  central  gov- 
ernment. The  determination  of  the  average  yield  was  to 
be  made  by  the  "Bundesrat"  (imperial  federal  council). 

*  Some  of  the  local  laws,  e.g.,  in  Essen,  make  this  date  the  limit  of 
the  retroaction. 

*  The  law  went  into  effect  on  April  1,  1911,  but  with  retroactive  force 
from  January  1,  1911.  See  Reichazuwachssteuergesetz,  §§  72,  62.  For 
amendments  see  infra,  §  21. 

*  The  exception  is  discussed  in  this  section. 

*  Reichszuwachssteuergesetz,  §§  58,  60. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    159 

The  local  governments  may,  moreover,  with  the  permis- 
sion of  the  state  government  (Landesregierung)  levy  a  rate 
supplementary  to  the  imperial  increment  tax,  the  revenue 
of  which  accrues  to  the  community.  This  additional  tax 
shall  be  a  percentage  rate  not  to  exceed  one  hundred  per 
cent  of  the  revenue  of  the  subvention.  Furthermore,  the 
supplementary  rate  together  with  the  imperial  tax  shall  not 
exceed  thirty  per  cent  of  the  value  increment.^  As  regards 
the  levy  of  this  supplementary  rate,  the  local  authorities 
are  empowered  to  determine  the  system  of  taxation  with 
respect  to  the  kind  of  land,  and  the  length  of  ownership. 
To  this  extent,  then,  the  local  systems,  imtil  the  law  was 
amended,  existed  side  by  side  with  the  imperial  system. 

The  expediency  of  an  imperial  tax  on  value  increment 
versus  the  local  taxes  was  at  the  time  of  the  enactment 
of  the  "Reichszuwachssteuer"  an  open  question.  Even 
though  the  localities  had  not  been  put  at  a  disadvantage 
fiscally  by  the  imperial  enactment,  authorities  were  not 
agreed  as  to  the  e^ediency  of  the  policy  in  general.  On 
the  one  hand,  some  tax  oflBcials  saw  a  better  administra- 
tion under  the  imperial  system,*  based  on  the  general  ad- 
vantage of  uniformity.  According  to  Dr.  Boldt,  the  com- 
munities in  which  the  landowners  were  most  influential  had 
the  mildest  ordinances,  whereas  the  manufacturing  cities, 
as  Gelsenkirchen  and  Heme,  for  example,  had  succeeded 
in  introducing  satisfactory,  effective  measures.  From  this 
standpoint,  then,  the  imperial  law  would  make  the  sys- 
tems uniform,  would  remove  the  tax  from  local  political 
influences,  and  would  prevent  the  loss  of  revenue  through 
unfavorable  litigation.^  The  progressive  form  of  the  tax, 
too,  would  lend  itself  better  to  an  imperial  rather  than  to 
a  local  tax. 

On  the  other  hand,  the  partisans  of  local  autonomy  be- 

^  Retchszuwachssteuergesetz,  §  59. 

*  "  Verhandlungen  des  Vereins  fUr  Sozialpolitik, "  in  Sckriften  des  Ver- 
eins,  vol.  cxxxviii,  pp.  4i2-4S. 
»  Ibid.,  pp.  43,  62. 


160  THE  TAXATION  OF  LAND  VALUE 

lieved  that,  like  all  taxes  on  realty,  the  increment  tax 
should  be  levied  by  the  locality  and  in  the  interest  of  the 
locality  in  which  the  property  is  situated.  Thus  Professor 
Eheberg  ^  said,  "  I  would  have  much  preferred  to  see  the 
tax  in  the  hands  of  the  localities  rather  than  in  those  of  the 
imperial  government,  because  the  relationship  between 
land-value  increments  and  local  fiscal  policy  is  surely  more 
evident  and  simpler  than  that  between  the  appreciation  in 
land  value  and  imperial  taxation."  That  is,  inasmuch  as 
the  community  gives  rise  to  the  great  appreciation  in  land 
value  through  its  public  improvements  and  industrial 
development,  it  should  be  the  recipient  of  this  socially 
created  value.  To  this  the  further  argument  is  added,  that 
the  local  officials  can  best  administer  the  tax,  and  that, 
on  account  of  the  complexities  involved  in  the  imperial 
system,  the  expenses  of  administration  will,  for  a  while  at 
any  rate,  exceed  those  incurred  by  the  locaUties  in  the 
collection  of  the  tax.^ 

Judging  from  the  amendment  of  the  law  in  1913,  and 
from  the  operation  of  the  imperial  increment  tax  during 
two  years,  we  can  now  draw  definite  conclusions  with  regard 
to  the  relative  expediency  of  the  German  imperial  and 
local  value-increment  taxes.  The  causes  of  the  relegation 
of  the  tax  to  the  local  bodies  will  be  discussed  below.' 

§  17.  The  ten  per  cent  of  the  receipts  from  the  tax  that 
is  turned  over  to  the  state  governments  is  compensation 
for  the  administration  of  the  increment  tax.  These  gov- 
ernments shall  establish  offices  for  that  purpose.*  The 
administration  of  the  tax  is  simple.  The  seller,  purchaser,  or 
other  interested  person  shall  report  any  transfer  of  land  to 
the  delegated  tax  authority  within  one  month  of  such 
transfer.  Though  each  one  of  the  interested  persons  is 
under  obligation  to  give  notice  of  the  transaction,  not  more 

*  "  Verhandlungen  des  Vereins  fiir  Sozialpolitik,"  in  Schriften  de» 
Vereins,  vol.  cxxxvin,  p.  72.   (Translated.) 

«  Ibid.,  p.  54.  »  Infra,  §  21. 

*  Reichszuwachssteuergesetz  vom  H  Februar  1911,  §  35. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    161 

than  one  such  notice  is  required;  nor  is  such  notification 
necessary,  if  within  the  month,  a  declaration  before  a  court 
or  a  registration  of  the  transfer  in  the  "Grundbuch" 
(Domesday  Book)  is  made.  In  case  of  property  held  in 
joint  ownership  which  is  transferred  to  a  part  owner  of  the 
company,  no  tax  is  chargeable.  But  on  the  next  occasion  of 
transfer,  the  whole  increment  accruing  since  the  last  tax- 
able occasion  before  the  separation  of  ownership  shall  be 
liable  for  tax.  ^  The  seller  or  sellers  shall  be  held  Uable  for 
the  tax;  but  if  the  tax  cannot  be  collected  from  the  seller, 
the  purchaser  shall  be  liable  to  the  amoimt  of  two  per  cent 
of  the  selling  price  of  the  property.  ^  The  fee  of  the  realty 
agent  is  taxable,  and  such  agent  is  liable,  jointly  and  sever- 
ally with  the  seller,  for  such  fee.  In  case  a  transaction,  on 
which  tax  has  been  paid,  has  been  revoked,  the  amount  of 
the  tax  shall  be  returned;  or,  in  case  of  a  reduction  in  the 
selling  price,  the  tax  shall  be  correspondingly  reduced  and 
the  excess  refunded.'  If  the  land  is  transferred  back  to  the 
previous  owner  within  two  years  after  the  sale,  the  tax 
must  be  refunded,  subject  to  the  regulations  prescribed 
by  the  Bundesrat.  In  such  case,  of  course,  it  shall  be  con- 
sidered that  no  sale  has  occurred. 

Information  shall  be  furnished  the  tax  authorities  by:* 
(1)  registries  of  deeds  (Grundbuchamter)  concerning  all 
recorded  transfers  of  property;  (2)  by  the  registry  courts 
and  authorities  (Registerberichte-und-behorden)  concern- 
ing the  registration  of  transfers;  (3)  by  the  authorities 
and  oflScials,  imperial,  state,  and  local,  and  notaries  con- 
cerning all  legal  transactions  regarding  the  transfer  of 
property,  and  concerning  previous  collections  of  tax;  (4) 
by  other  bodies,  upon  the  demand  of  the  state  governments 
with  the  consent  of  the  Chancellor. 

Upon  the  demand  of  the  tax  authority  and  within  a 
period  of  time  named  by  that  authority,  the  seller  who  has 

*  Reichszutoachsateuergesetz  vom  H  Februar  1911,  §  25. 

•  Ibid.,  §  29.  »  Ilnd.,  §§  82,  33,  34.  «  Ibid.,  §  38. 


162  THE  TAXATION  OF  LAND  VALUE 

given  notice  of  the  transaction  is  called  upon  to  make  a  tax 
declaration.  Objections  to  the  declared  valuation  may  be 
made  by  the  authority,  and  if  the  required  changes  are  not 
made  by  the  taxpayer  within  the  period  of  time  allowed, 
the  tax  authority  may  make  the  assessment  and  collect  the 
tax  accordingly.  The  cost  of  the  valuation  must  be  borne 
by  the  taxpayer,  in  case  the  tax  based  on  the  assessed  value 
exceeds  by  one-third  the  amount  based  on  the  declara- 
tion.^ The  ordinary  process  of  assessment  does  not  in- 
volve the  payment  of  fees  or  stamp  dues  by  the  taxpayer.  ^ 
If  the  immediate  collection  of  the  tax  will  entail  undue  hard- 
ship, a  delay  may  be  granted,  or  payment  by  installments 
may  be  permitted,  subject  to  the  regulations  of  the  Bundes- 
rat.  In  such  cases  security  may  be  required,  and  when  the 
conditions  which  occasioned  the  special  treatment  have 
ceased  to  exist,  the  privilege  is  withdrawn. 

Objections  to  the  assessment  may  be  made  in  writing 
within  a  month  after  the  notice  of  the  assessment  has  been 
served.  The  complaint  must  state  the  court  before  which, 
and  the  time  within  which,  the  appeal  shall  be  made.  The 
proceedings  are  subject  to  the  regulation  of  the  Bun- 
desrat.' 

Regarding  the  penalties  with  respect  to  violations  of  the 
requirements  of  the  law,  the  taxpayer  is  subject  to  a  fine, 
not  to  exceed  four  times  the  amount  of  the  tax,  if  he  fails  to 
give  notice  of  a  transfer  of  property,  or  to  make  declara- 
tion, or  if  he  knowingly  makes  false  returns.  He  is  given  a 
period  within  which  he  may  retract  his  statement  before 
penalty  is  applied.*  If  it  shall  appear  that  the  false  state- 
ment or  failure  to  make  the  necessary  returns  was  not 
made  with  the  purpose  to  defraud,  a  fine  not  exceeding  600 
marks  may  be  substituted  for  the  fine  mentioned  above. 
For  other  violations  of  the  provisions,  a  fine  not  exceeding 
150  marks  may  be  imposed.  In  case  of  companies  and  cor- 

*  Reichszuwachssteuergesetz  vom  H  Februar  1911,  §§  39,  40,  43. 
«  im.,  §  56.  »  lUi.,  §§  44,  45.  *  Ibid.,  %  60. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    16S 

porations,  the  representatives,  managers,  or  directors  shall 
be  liable  for  the  fine  in  fuU,^  It  is  further  provided  that,  if 
the  owner  is  a  German,  his  property  shall  not,  without  his 
consent,  be  sold  at  auction  in  order  to  collect  the  increment 
tax;  nor  shall  an  owner  be  imprisoned  for  failure  to  pay  a 
fine.^  The  right  to  an  increment  tax  shall  lapse  after  ten 
years.' 

In  general,  the  administration  of  the  tax  is  obviously 
simple.  The  assessment  becomes  largely  a  matter  of  regis- 
tration of  sales  and  of  mathematical  computation  of  the 
tax.*  But  while  it  obviates  very  largely  the  need  of  expert 
valuers  such  as  the  Australasian  and  English  systems 
require,  the  difficulties  of  computation  of  the  value  in- 
crement and  the  litigation  which  the  law  of  1911  has 
occasioned,  have  enhanced  the  cost  of  administration 
inordinately  in  proportion  to  the  yield  of  the  tax. 

§  18.  The  provisions  of  the  imperial  law  analyzed  in  the 
preceding  sections  were  in  the  main  modelled  after  those 
contained  in  the  local  ordinances.  But  there  are  great  dif- 
ferences in  method  in  the  various  local  measures;  and  these 
deserve  consideration,  because  the  efficacy  of  the  increment 
tax  depends  largely  on  the  methods  of  assessment,  on  the 
rates,  and  on  the  exemptions.  Regarding  the  allowances  for 
interest,  for  expenditures  and  other  compensation  in  ascer- 
taining the  value  increment,  a  great  variety  of  procedure 
exists.  For  example,  the  state  tax  of  Saxony  was  made 
applicable  to  unimproved  land  only,  because  the  difficulties 
of  measuring  the  "  unearned  increment"  accruing  from  im- 
proved land  seemed  insuperable.^  What  constitutes  a 
"fair"  interest,  what  a  "just"  allowance  for  expenditures 
incurred  are  questions  variously  answered  in  the  different 

*  Reichszuwachsateuergesetz  vom  1^  Februar  1911,  §§  51,  53,  54. 
»  lUd.,  §§  49,  65.  «  Ibid.,  §  57. 

*  The  diflBculties  involved  in  the  assessment  are  chiefly  those  con- 
nected with  the  interpretation  and  legality  of  the  provisions.  C/.  infrOf 
§22. 

*  C/.  Schriften  des  Vereinsfur  Sozialpolitik,  vol.  cxxvi,  p.  272. 


164  THE  TAXATION  OF  LAND  VALUE 

laws.  For  example,  Gottingen  allows  ten  per  cent  of  the 
purchase  price  to  be  added  as  compensation  for  expendi- 
tures and  another  ten  per  cent  for  depreciation  in  case  the 
land  has  not  changed  hands  in  ten  or  more  years;  Frank- 
furt a.  M.,  Cologne,  Breslau  grant  an  allowance  of  five  per 
cent  for  outlays;  Tegel,  Weissensee,  Emden,  Aschenleben 
allow  five  per  cent  when  the  land  is  improved,  three  per  cent 
when  unimproved.  Again,  the  rate  of  interest  (not  com- 
pounded) allowed  for  the  earnings  on  the  invested  capital 
is  not  uniform.  Frankfurt  and  Cologne  provide  for  a  four 
per  cent  allowance  for  each  year  of  ownership  in  the  case  of 
unimproved  land;  Gelsenkirchen  only  two  per  cent,  but  for 
a  period  of  ownership  not  exceeding  twenty  years;  ^  Bre- 
men and  Hamburg  make  no  allowance  for  interest.  The 
expediency  from  both  the  fiscal  and  social  standpoints  of 
allowing  no  interest  especially  in  case  of  unimproved  land 
has  been  maintained  by  Dr.  Boldt,^  who  argues  that  the 
less  compensation  allowed  for,  the  greater  the  revenue  and 
the  more  effective  the  check  on  land  speculation.  The  impe- 
rial law,  as  we  have  seen,  follows  the  other  system  which 
in  turn  is  defensible  on  the  principle  of  equity  in  taxation. 

In  most  of  the  local  measures,  these  allowances  includ- 
ing expenditures  are  added  to  the  previous  purchase  price. 
In  Gelsenkirchen  and  Minden,  however,  they  are  deducted 
from  the  selling  price.  The  latter  method  makes  the  tax 
more  productive  and  accords  with  the  principle  of  taxing 
the  "  unearned  increment.'* 

In  respect  to  the  retroactive  feature  of  the  tax,  the  pro- 
visions in  the  local  ordinances  can  be  summarized  under 
four  general  principles.  First,  the  tax  is  to  be  moderately 
retrospective,  probably,  with  the  object  in  view  to  tax  only 
speculative  value  increments  which  are  thought  not  to  ac- 
company long  tenure.   In  accordance  with  this  principle, 

*  Cf.  Schriften  des  Vereins  fur  Sozialpolitik,  vol.  cxxvn,  p.  120. 

*  Die  Wertzuwachssteuer.  Dr.  Boldt  would  limit  the  allowance  f<« 
interest  to  a  short  period,  e.g.,  five  years.  CJ.  ibid.,  p.  61. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    165 

Frankfurt  levies  the  increment  tax  only  on  land  which  has 
changed  hands  within  the  preceding  twenty  years.  ^  Kiel 
and  Breslau  have  hkewise  "moderately  retroactive"  reg- 
ulations, the  "original  site"  limit  being  computed  from 
April  1, 1900,  and  January  1, 1895,  respectively.  Secondly, 
there  are  some  cities  that  believe  the  community  is  en- 
titled to  a  share  of  the  value  increment  from  the  day  of  the 
previous  purchase.  They  accordingly  fix  no  limit,  seeking 
the  actual  purchase  price  in  every  case.  Liegnitz,  Hamburg, 
Weissensee  are  examples  of  this  category.  Thirdly,  by  set- 
ting the  limit  to  1860  and  1871,  respectively,  Dortmund  and 
Essen  do  not  in  practice  depart  from  the  second  principle, 
for  the  land  before  1871,  for  the  most  part,  had  only  an  ag- 
ricultural value.  The  restriction,  therefore,  is  only  nom- 
inal. Fourthly,  altogether  opposed  to  retroactive  taxation 
are  Cologne  and  Gross-Lichterfelde,  for  example.  These 
cities  proposed  to  tax  only  the  increment  which  should  have 
accrued  since  the  enactment  of  their  laws.  Aside  from  the 
loss  of  revenue  which  this  system  occasions,  it  necessitates 
a  valuation  of  all  the  land  at  the  time  the  law  is  passed. 
Such  a  valuation  is  expensive  and  gives  rise  to  a  great 
amount  of  litigation.*  In  fixing  January  1,  1885,  therefore, 
as  the  limit  of  retroaction,  the  imperial  law  followed  a  mid- 
dle course;  the  result  of  which,  according  to  some  authori- 
ties, will  be  less  revenue  and  greater  difficulty  arising  from 
valuing  land  from  an  arbitrary  date.' 

§  19.  More  important  criteria  even  of  the  efficacy  of  the 
increment  taxes  are  the  rates,  the  exemptions,  and  the  re- 
bates allowed  on  the  basis  of  length  of  ownership  and  the 
kind  of  land,  whether  improved  or  unimproved.  The  dif- 

*  We  have  seen  that  in  case  of  longer  tenure  the  land  is  subject  only  to 
the  "Umsatzsteuer."   CJ.  supra,  §  6. 

*  A  great  deal  of  litigation,  where  the  previous  piurchase  price  is  taken 
as  the  value,  is  obviated  because  the  custom  of  recording  land  transfers 
and  the  prices  in  the  "Gnindbuch"  is  general  throughout  Germany. 

*  A  considerable  number  of  lawsuits  have  been  brought  already  on  ac- 
count of  the  valuation  "nach  dem  gemeinen  Wert."  Cf.  AmUiche  Mittei- 
lungen  iiber  die  Zuwachssteuer  (1912),  Nr.  11,  pp.  184-85. 


166 


THE  TAXATION  OF  LAND  VALUE 


ferences  in  the  scales  of  rates  in  the  local  statutes  are 
noteworthy.  From  the  following  table  a  comparison  of 
the  rates  can  be  made.    First,  we  note  that  unless  an 

TABLE  SHOWING  MINIMUM  INCREMENT  EXEMPTION, 
RATE  OF  PROGRESSION,  AND  RATE  OF  TAX  IN 
CERTAIN  OF  THE  LOCAL  SYSTEMS  ^ 


CUy 


Cologne 

Fraakfurt  a.  M 

Dortmund 

Essen 

Linden 

Kreuznach 

Marburg 

Pankow 

Weissensee. . . . 
Lichterfelde . .  . 
Zehlendorf .  .  .  . 
Reinickendorf . , 

Berlin 

Jena 

Markanstadt. . 


Minimum 
incremeni 

exempt 

{per  cent  of 

purchase 

price) 


10 
15 
10 
20 
10 
10 
10 
10 
10 
10 
10 
10 
10 
10 
10 


Rate  of  pro- 
gression (as 
incremeni 
progresses, 
rate  increases 
by  1  per  cent) 
{per  cent  of 
purchase 
price) 


10  (10-20) 
5  (15-20) 

10  and  5 

10 

10 

30  (10-40) 
5 

10 

10 

10 

10 

10  and  25 

10 
5 

10 


Rates 


Mini- 
mum 
{per 
cent) 


10 
2 
3 
3 
3 
3 
3 
5 
5 

10 
5 
2 
5 
5 
1 


Maxi- 
mum 
{per 
cent) 


is 

25 
15 
15 
17 

8 
15 
20 
20 
25 
20 

8 
20 
25 
20 


increment  exceeding  a  certain  minimum  percentage  (ten 
per  cent  of  the  purchase  price  in  most  of  the  measures) 
accrues,  no  tax  is  collectible.  Secondly,  bearing  in  mind 
that  the  rate  of  tax  increases  by  one  per  cent  for  every  ad- 
ditional five,  ten,  and  sometimes  thirty  per  cent  of  the  pur- 
chase price  (as  shown  in  column  S),  it  becomes  evident 
that  the  smaller  the  rate  of  progression  the  larger  the 
revenue,  other  things  being  the  same;  thus  compare  the 
rates  in  Dortmund  and  Kreuznach,  both  of  whose  scales 
,  »  Boldt,  op.  cit.,  pp.  80-81. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY     167 

begin  with  a  minimum  rate  of  three  per  cent,  yet  whose 
revenue  will  vary  because  of  the  different  rates  of  pro- 
gression. The  discrepancy  will  be  seen  from  the  follow- 
ing:— 

KREUZNACH  DORTMUND 

S%  when  increment  is    10-  40%  3%  when  increment  is  10-20% 

4"      "  "  "    40-70"  4"      "  "         "20-30" 

5 "      "  "  "    70-100 "  5 "      "  "  "  30-40 " 

6 "      "  "  "  100-130 "  6 "      "  "  "  40-50 " 

7 "      "  "  "  130-160 "  7 "      "  "         "  50-60 " 

8"      "  "         "160-190"  8"      "  "         "60-70" 

Taking  all  the  different  factors  into  consideration,  the 
highest  scale  of  rates  in  the  cities  considered  in  the  table  is 
that  of  Cologne  and  Lichterfelde.^ 

Comparing  the  rates  under  the  imperial  tax  with  those 
in  the  table  above,  we  find  that  although  the  minimum  rate 
of  the  imperial  tax  is  ten  per  cent  and  the  maximum  thirty 
per  cent,  the  rates  as  a  whole  are  not  so  high  as  in  many  of 
the  local  schedules.  For,  while  the  maximum  rate  under 
the  imperial  measure  falls  on  a  value  increment  of  290  per 
cent  or  above,  the  maximum  under  the  local  systems  is 
usually  levied  on  a  lower  increment.  Thus  in  Frankfurt  a. 
M.  an  increment  of  130  per  cent  of  the  purchase  price  or 
above  is  taxable  at  the  rate  of  twenty-five  per  cent,  while 
in  Cologne,  160  per  cent  is  taxable  at  that  rate;  under  the 
imperial  tax,  however,  the  rate  of  tax  on  a  value  between 
130  to  160  per  cent  is  only  from  sixteen  to  eighteen  per 
cent.  The  difference,  of  course,  Hes  in  the  fact  that  while 
the  rate  of  the  imperial  tax  increases  by  one  per  cent  for 
every  twenty  per  cent  (up  to  190  per  cent)  and  every  ten 
per  cent  (from  190  to  290  per  cent)  increase  in  the  incre- 
ment, the  local  rates  increase  by  one  per  cent  for  every 
five  or  ten  per  cent  increase. 

With  respect  to  the  exemption  of  a  minimum  increment 

^  We  must  bear  in  mind,  however,  that  in  both  these  cities  only  the 
future  value  increment  is  taxable,  so  that  the  productiveness  of  the  tax 
is  considerably  reduced.  Cf.  supra,  p.  166. 


168  THE  TAXATION  OF  LAND  VALUE 

from  taxation,  the  method  of  levy  under  the  Cologne  ordi- 
nance is  exceptional.^  Usually  in  the  local  measures,  a 
minimum  exemption  is  allowed  only  in  case  the  increment 
does  not  exceed  a  certain  percentage  of  the  purchase  price. 
When  the  increment  is  taxable,  however,  no  minimum 
exemption  from  the  tax  is  made.  For  example,  assume  the 
minimum  increment  exempted  under  the  ordinance  to  be 
ten  per  cent,  then  when  the  increment  is  250  marks,  and 
the  purchase  price  3000  marks,  the  increment  is  not  taxable 
because  it  is  less  than  ten  per  cent  of  the  purchase  price. 
But  were  the  increment  320  marks,  the  whole  increment 
would  be  liable  for  the  tax.  In  Cologne,  however,  the 
method  of  levy  is  different;  in  every  case  ten  per  cent  of  the 
purchase  price  (in  the  assumed  instance  300  marks)  would 
there  be  exempted  from  taxation.  Hence,  in  the  assumed 
case  only  twenty  marks  would  be  the  taxable  value.  For 
purposes  of  ascertaining  the  rate  of  tax,  however,  the  ex- 
empted 300  marks  would  be  included. 

The  scale  of  rates  and  method  of  levy  in  Hamburg  and 
Berlin  are  somewhat  different.  In  Hamburg,  the  rate  of 
tax  is  calculated  according  to  the  following  schedules:  ^ 

(a)  On  any  increase  in  value  — 

Up  to        2,000  marks 1    per  cent 

Between    2,000  "      and    4,000  marks 1§   " 

4,000  •'        "      6,000      "     2 

6,000  "        "      8,000      "     2i 

8,000  "        "    10,000      "     3 

10,000  "        "    20,000      "     S| 

20,000  "        "    30,000      "     4 

30,000  "        "    40,000      "     4§ 

Over        40,000  6 

(6)  In  addition,  if  the  increment  exceeds  ten  per  cent  of 
the  purchase  price,  the  rate  under  (a)  is  increased  by:  — 

*  Jahrbuch  der  Bodenreform  (1905).  Section  6  of  the  Cologne  ordi- 
nance reads:  "An  increase  of  value  of  ten  per  cent  or  less  is  in  all  cases 
exempt  from  the  tax.  If  the  value  increment  exceeds  this  percentage, 
the  whole  percentage  of  increment  is  to  be  counted  in  determining  the 
rate  of  tax.   (Italics  mine.) 

*  Cf.  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  17. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    169 


10  per  cent,  if  increment  is  between  10-  20  per  cent  inclusive 


20 
SO 
40 
50 
60 
70 
80 
90 
100 


exceeds 


20-  80 
SO-  40 
40-  60 
60-  60 
60-  70 
70-  80 
80-  90 
90-100 
100 


The  Hamburg  system,  it  will  be  noted,  resembling 
therein  the  imperial  tax,  does  not  allow  a  minimum  exemp- 
tion, thereby  deviating  from  the  usual  practice,  but  in- 
suring more  productive  returns  from  the  tax.^ 

The  question  of  rebate  on  the  basis  of  the  length  of 
ownership  and  the  utilization  of  the  property  has  been 
treated  variously  by  the  localities.  First,  some  cities  al- 
low no  reduction  whatever;  such  are,  for  example,  Gross- 
Lichterfelde  and  Liegnitz.  Secondly,  some  grant  no  reduc- 
tion in  case  of  unimproved  land;  such  are,  Dortmund, 
Essen,  Pankow,  Weissensee,  and  others.  Thirdly,  there 
are  a  number  of  cities  which  make  no  distinction  between 
improved  and  unimproved  land,  but  allow  a  reduction  of 
the  tax  on  the  basis  of  length  of  tenure;  thus,  in  Cologne, 
the  reduction  of  the  tax  is  one-third,  if  more  than  five,  but 
not  more  than  ten,  years  have  elapsed  since  the  preceding 
purchase,  and  two-thirds  if  the  period  exceeds  ten  years;  ^ 
in  Hamburg,  a  rebate  of  one-fourth  of  the  tax  is  granted 
if  the  length  of  ownership  has  exceeded  thirty  years,  and 
the  tax  is  increased  by  one-fourth  if  the  length  of  owner- 
ship has  been  less  than  ten  years.'  The  case  is  slightly  dif- 
ferent in  Frankfurt  a.  M.  where  no  distinction  is  drawn 
between  improved  and  unimproved  land  for  purposes  of  the 

*  K8ppe  (op.  cit.,  p.  727)  points  out  that  there  will  be  the  incentive  to 
sell  the  property  in  portions  and  piecemeal  to  avoid  paying  the  higher 
additional  rates.  But  this  method  of  evasion,  which  is  possible  under  all 
the  systems,  must  be  prevented  by  special  provision. 

*  See  infra,  table,  pp.  170  jf. 

*  The  rates  of  tax  in  Hamburg  range,  therefore,  from  three-fourths  to 
twelve  and  one-half  per  cent  of  the  increment. 


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TAX  ON  VALUE  INCREMENT  IN  GERMANY    173 

increment  tax.  But  instead  of  a  reduction,  the  rate  of  the 
increment  tax  is  changed  to  the  rate  of  the  additional 
"Umsatzsteuer,"  if  the  ownership  exceeds  twenty  years.* 
Fourthly,  in  some  cities,  the  reduction  is  based  on  both 
criteria,  length  of  ownership  and  condition  of  the  land; 
thus,  Breslau  collects,  when  the  land  is  improved,  two- 
thirds  of  the  tax  in  case  of  a  tenure  of  over  five  years, 
one-third  of  the  tax  in  case  of  a  tenure  of  over  ten  years; 
when  the  land  is  unimproved,  however,  the  reduction  is 
one-third  when  over  ten  years,  and  two-thirds  when  over 
twenty  years. 

In  contrast  to  these  methods,  the  system  of  reductions 
under  the  imperial  tax,  one  per  cent  and  one  and  one-half 
per  cent  for  each  year  according  to  the  length  of  ownership, 
is  novel.  The  principle  underlying  the  reductions,  however, 
is  the  same,  the  longer  the  period  of  ownership  the  more 
liberal  the  reduction.  But  in  this  provision  of  the  imperial 
law,  no  distinction  is  drawn  between  improved  and  unim- 
proved land. 

§  20.  The  effects  of  this  variety  of  legislation  are  well 
seen  in  the  fiscal  returns  from  the  local  increment  taxes. 
From  the  above  table  (see  pp.  170-72)  this  relation  be- 
tween law  and  fiscal  effect  is  readily  traceable.  The  last 
column  shows  the  revenue  raised  by  the  tax  in  some  of  the 
localities  where  the  system  is  in  operation.  The  most  sig- 
nificant facts  that  the  figures  present  are:  (1)  the  smallness 
of  the  yield;  (2)  the  fluctuating  amounts,  as  in  Frankfurt 
a.  M.,  for  example;  (3)  the  disproportionate  proceeds 
viewed  from  the  standpoint  of  the  size  of  the  cities. 

In  considering  these  facts  it  must  be  borne  in  mind  that 
most  of  the  communities  are  exceptionally  small  (see  col- 
umn 1),  that  the  tax  has  been  in  operation  but  a  short  time 
(see  column  2),  and  that  the  tax  is  an  indirect  one,  col- 
lectible upon  certain  occasions.  Bearing  in  mind  that  the 

^  But  under  this  "  Umsatzsteuer,"  the  rate  is  different  for  improved 
and  unimproved  land.  Cf.  supra,  §  6. 


174  THE  TAXATION  OF  LAND  VALUE 

yield  of  the  increment  will  fluctuate  from  year  to  year  ac- 
cording to  market  conditions,  the  industrial  prosperity  of 
the  city,  and  other  conditions,  we  nevertheless  discover 
from  the  figures  a  close  relationship  between  the  provi- 
sions of  the  statutes  and  the  proceeds  of  the  tax.  For  ex- 
ample, taking  the  average  receipts  for  the  three  years 
(1907-09),  it  is  significant  that  Breslau,  with  a  popula- 
tion three  times  that  of  Dortmund,  raised  only  about 
eighty  per  cent  of  the  revenue  yielded  by  the  tax  in 
Dortmund;  or  that  Weissensee,  with  a  population  less 
than  one-tenth  that  of  Cologne,  raised  on  an  average, 
during  the  same  period,  a  greater  sum  than  the  latter 
city. 

The  explanation  will  be  found  in  comparing  columns  3, 
4,  and  5.  The  tax  in  Weissensee  is  retroactive  without 
limit,  and  allows  no  reduction  in  case  of  unimproved  land; 
in  Cologne,  on  the  other  hand,  only  those  increments  that 
have  accrued  since  the  enactment  of  the  ordinance  are 
taxable,  and  the  same  reductions  are  made  in  the  case  of 
unimproved  as  in  that  of  improved  land.  A  striking  in- 
stance of  eflFectiveness  due  to  legal  provision  is  furnished  by 
Pankow,  a  town  of  only  29,000,  and  just  turning  urban  in 
character  so  that  speculation  is  especially  rife  there.  It  is 
noteworthy  that,  in  1909,  the  receipts  from  the  increment 
tax  exceeded  those  of  Breslau  and  Cologne,  and  came  close 
to  those  of  Frankfurt  a.  M.  And  so  in  the  other  cities, 
leading  us  to  the  conclusion  that  from  a  fiscal  standpoint 
some  of  the  German  local  systems  were  more  effective  than 
others,  according  as  the  reductions  were  fewer,  the  scale  of 
rates  higher,  and  the  retroaction  longer. 

Another  cause  for  the  fluctuating  and  slight  yield  of  the 
local  taxes  can  be  traced  to  the  excessive  litigation  which 
the  different  laws  have  given  rise  to.  The  legality  of  the 
"Wertzuwachssteuer"  has  been  questioned,  especially  its 
retroactive  feature.  The  validity  of  the  Frankfurt  ordi- 
nance was  established,  however,  by  the  decision  of  the 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    175 

Prussian  court  in  1906.^  Nevertheless,  the  local  authorities 
have  sustained  many  losses  on  account  of  the  litigation.' 
For  example,  in  Schoneberg,  500,000  marks  had  been  col- 
lected as  tax  from  one  of  the  "  Millionenbauern."  He  con- 
tested the  legality  of  the  law,  on  a  technicality,  with  the 
result  that  the  money  had  to  be  returned  to  him.'  In- 
deed, the  comparatively  smaller  yield  of  the  tax,  in  1908, 
in  Cologne,  is  attributed  to  the  decisions  of  the  court  in 
favor  of  the  appellants.* 

In  connection  with  the  fiscal  aspect  of  the  local  incre- 
ment taxes,  it  is  important  to  point  out  some  of  the  uses  to 
which  the  revenue  from  the  tax  has  been  put  in  the  cities. 
It  is  the  general  belief  that  the  value  increment  is  socially 
created,  that  is,  attributable  to  the  growth  of  the  com- 
munity through  public  improvements,  protection,  and  in- 
crease in  population.  Hence  the  utilization  of  the  tax  for 
social  welfare  work,  sanitation,  educational  and  recrea- 
tional facilities,  and  public  utilities  generally  (items  which 
consume  an  ever-growing  percentage  of  the  local  budgetary 
funds),  has  found  favor  in  many  communities.  For  this 
reason  and  probably,  too,  because  of  the  fluctuations  in  the 
yield  of  the  tax,  some  of  the  cities  have  established  special 
funds  out  of  the  proceeds.  In  Frankfurt,  for  instance,  the 
fund  is  devoted  to  school  building  purposes  and  to  the 
erection  of  other  educational  institutions.    In  Markran- 

*  Boldt,  Die  Wertzuwachssteuer,  p.  15.  The  legality  of  the  imperial 
tax  has  been  upheld  by  the  imperial  court.  Cf.  AmUiche  Miiteilungen 
iiber  die  Zuwachssteuer  (1912).  (Entscheidungen  der  obersten  Gerichts- 
hofe.) 

*  Boldt,  Die  Wertzuwachssteuer,  p.  128.  The  experience  of  Dortmund 
has  been  more  favorable,  since  out  of  225  assessments  only  thirteen  com- 
plaints were  voiced. 

*  "  Verhandlungen  des  Vereins  fflr  Sozialpolitik,"  in  Schriften  des  Ver- 
eins,  vol.  cxxxvni,  p.  43. 

*  Cf.  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  p.  19.  It 
will  be  recalled  that  in  Cologne  a  valuation  of  the  land  was  necessitated 
by  the  provision  for  taxing  only  the  future  value  increment.  By  unifying 
all  the  measures  through  the  imperial  law,  it  is  hoped  the  excessive  losses 
of  revenue  through  litigation  will  cease. 


176  THE  TAXATION  OF  LAND  VALUE 

stadt,  it  is  devoted  to  street  building;  while  in  Marburg  it 
constitutes  the  communal  land  purchase  fund,^ 

§  21.  How,  then,  were  the  local  bodies  which  already 
taxed  the  value  increment  of  land  affected  by  the  enact- 
ment in  1911  of  the  imperial  law?  Until  1915,  under  the 
provision  of  the  Act,  such  communities  were  to  sustain  no 
fiscal  loss.  First,  where  the  average  yield  of  the  tax  prior 
to  the  Act  had  amounted  to  more  than  the  forty  per  cent 
subvention  under  the  new  law,  the  community  profited  by 
the  difference  in  comparison  with  the  local  bodies  that 
had  no  increment  tax.  In  Prussia  the  number  of  such 
'*Gemeinden"  was  one  hxmdred  and  sixty.^  Secondly,  the 
local  governments  were  permitted  to  retain  the  old  system 
of  levying  the  increment  tax.  But  until  1913  only  seven 
cities  had  taken  advantage  of  this  permission,  namely, 
Hamburg,  Liibeck,  Emden,  Erfurt,  Essen,  Frankfurt  a. 
M.,  and  Gelsenkirchen.  Thirdly,  additional  rates  could 
be  levied  by  any  "Gemeinde"  to  the  value  of  one  hun- 
dred per  cent  of  the  imperial  tax.  Sixty-six  local  bodies 
had  taken  advantage  of  this  privilege.'  Finally,  all  the 
other  communities  profited  by  the  introduction  of  the 
"Reichszuwachssteuer,"  receiving  forty  per  cent  of  the 
receipts  from  all  the  taxable  land  transfers  in  their  juris- 
diction. 

The  proceeds  from  the  imperial  tax  until  the  amendment 
of  the  Act,  July  3,  1913,  were  for  the  fiscal  years  1911-12 
24.2  million  marks,  and  for  the  following  year  nearly  double 
that  amount.  Of  these  receipts  the  central  government 
received  10,069,340  marks  the  first  year,  and  20,021,897 
marks  the  second  fiscal  year.* 

By  the  amendment  of  the  Act  of  1911,  adopted  July  3, 
1913,  the  central  government  relinquished  its  quota  of  the 

^  Kommunales  Jahrbuch  (1909),  vol.  i,  p.  651. 

*  Berthold,  Ergebnisse  der  Wertzuwachssteuer,  p.  22. 

»  Ibid.,  pp.  21-22;  cf.  Kommunales  Jahrbuch  (1914),  p.  740. 

*  Annalen  des  deutschen  Reicha  (1912),  vol.  XLV,  p.  780;  Jahrbuch  der 
Bodenreform,  vol.  ix,  p.  239. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    177 

tax,  so  that  the  levy  of  the  value-increment  tax  on  land  will 
henceforth  belong  to  the  local  and  state  governments.  The 
communities  shall  continue  to  impose  the  tax  in  accord- 
ance with  the  Act  of  1911,  or  shall  adopt  another  system  of 
increment  tax  subject  to  state  regulation  and  in  conformity 
with  state  law.  The  communities  that  received  the  excess 
amount  over  the  forty  per  cent  subvention  will  be  per- 
mitted until  April,  1915,  to  raise  enough  revenue  to  cover 
the  excess;  while  the  seven  cities  ^  that  had  retained  their 
old  systems  of  levy  may  continue  to  raise  the  tax  thus  with 
the  consent  of  the  state  government,  and  to  keep  the  ex- 
cess over  the  designated  average  yield.  A  minor  provision 
permits  the  tax  oflficials,  with  the  consent  of  the  state  gov- 
ernment, to  refrain  from  assessing  and  collecting  a  small 
increment  tax,  the  amount  of  which  is  disproportionate  to 
the  cost  of  the  assessment.  ^ 

§  22.  The  history  of  the  virtual  repeal  of  the  imperial 
tax  on  land  value  throws  light  on  the  important  question  of 
the  fiscal,  social,  and  economic  effects  of  the  tax.  The  pro- 
posal to  raise  more  revenue  for  defence  by  means  of  an  im- 
perial value-increment  tax  on  all  property  directed  the  dis- 
cussion in  the  Reichstag  in  June,  1913,  to  the  increment 
tax  on  land.  The  repeal  of  the  latter  was  sought  on  these 
grounds:  (1)  The  enactment  of  the  more  general  increment 
tax  would  occasion  double  taxation  if  the  increment  tax  on 
land  were  retained.  (2)  The  cost  of  administration  of  the 
tax  was  out  of  all  proportion  to  the  yield.  (3)  The  appeals 
involved  endless  litigation.  (4)  The  tax  imposed  a  hardship 
on  the  small  owner.  (5)  The  various  needs  and  conditions 
in  the  different  communities  were  not  taken  into  account. 
(6)  The  effect  of  the  tax  on  the  realty  market  and  the  loan 
market  was  deleterious. 

On  two  points  there  seemed  to  be  a  general  consensus  of 

*  Cf.  supra,  p.  176. 

*  "Gesetz  Uber  Andeningen  im  Finanzwesen,"  printed  in  Jahrbuch  der 
Bodenreform,  vol.  ix,  p.  237. 


178  THE  TAXATION  OF  LAND  VALUE 

judgment  in  the  Reichstag  including  even  the  radical 
parties.^  First,  the  Act  of  1911  was  defective  in  the  fram- 
ing and  had  inflicted  considerable  hardship  on  other  than 
speculative  landowners.  Secondly,  it  was  desirable  and 
expedient  for  the  municipalities  and  other  local  bodies  to 
continue  to  levy  the  increment  tax.  These  facts  and  the 
widespread  unpopularity  of  the  tax,  rather  than  the  argu- 
ment of  double  taxation  were  responsible  for  the  repeal 
practically  of  the  imperial  law.  Among  the  defects  of  the 
Act  are  the  complex  provisions  which  make  the  valuation 
difficult,  and  the  costliness  of  the  assessments  of  the  smaller 
estates  in  proportion  to  the  tax  revenue  derived  from  them. 
This  is  appreciated  when  we  learn  that  in  Berlin  64.1  per 
cent  of  all  the  transfers  of  property  in  1911,  and  in  Char- 
lottenburg  68  per  cent,  were  exempt  from  the  increment  tax; 
and  that  the  percentage  of  exempt  transfers  is  similarly 
large  in  other  cities.  ^  A  member  of  the  Reichstag  told  how 
in  Fulda  the  expense  incurred  for  the  salaries  of  the  tax 
officials  exceeded  the  amount  of  tax  accruing  to  the  Em- 
pire.' Coupled  with  the  costliness  of  administration  was 
the  expense  of  the  excessive  and  prolonged  litigation  oc- 
casioned. Other  complaints  arose  from  the  difficulty  of 
ascertaining  the  unearned  increment  and  from  the  hard- 
ships imposed  upon  the  seller  of  heavily  mortgaged  prop- 
erty who  was  without  ready  money  to  pay  the  tax. 

The  relegation  of  the  tax  to  the  localities  after  two  years' 
experience  with  the  imperial  levy  was  a  decided  victory  for 
the  advocates  of  the  tax  for  local  purposes,  and  for  the 
principle  of  benefit  in  taxation.  The  imperial  law  failed  to 
take  into  account  local  conditions.  The  difference  between 
urban  and  rural  property  and  between  large  and  small 

*  The  Social  Democrats  had  voted  against  the  "  Reichszuwachs- 
steuer"  bill  in  1911;  in  1913,  however,  they  were  opposed  to  its  repeal, 
but  their  leaders  admitted  the  defectiveness  of  the  law. 

*  Berthold,  op.  eit.,  p.  68  Jf. 

*  See  Extracts  from  the  proceedings  of  the  Budget  Committee  and  in 
the  Reichstag  in  Jahrbuch  der  Bodenreform,  vol.  ix,  p.  199^. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    179 

municipalities,  the  effect  of  public  improvements  on  prop- 
erty in  town  and  country,  etc.,  are  factors  to  be  considered 
in  framing  a  law  for  the  taxation  on  land  value.  It  was  also 
argued  that  only  the  immediate  community  is  in  a  position 
to  decide  the  expediency  of  the  tax.  ^  Then,  too,  the  failure 
of  the  central  administration  to  save  expense  and  to  pre- 
vent excessive  litigation  further  justified  the  change  in  the 
law. 

In  considering  the  social  and  economic  effects  of  the  tax, 
it  is  important  to  note  that,  in  spite  of  the  action  taken  with 
regard  to  the  increment  tax,  the  principle  of  the  tax  was 
very  generally  upheld  and  accepted.  "  The  socio-political 
significance  of  the  tax  on  value  increment  lies  in  the  change 
of  public  opinion  which  formerly  decried  the  tax  as  socialis- 
tic and  confiscatory,  but  which  now,  as  a  matter  of  course, 
regards  it  as  a  supplement  to  the  income  and  property 
taxes."  2 

We  find  the  same  expectations  and  apprehensions  cur- 
rent in  Germany  when  the  tax  was  proposed  as  in  the  case 
of  the  Australasian  colonies.  The  chief  hope  of  the  partisans 
was  that  speculation  in  land  would  be  suppressed,  especially 
the  speculation  which  develops  when  the  agricultural 
prairie  value  of  the  land  is  converted  through  social  forces 
into  building-land  value.'  The  other  benefits  expected  to 
accrue,  such  as  building  reform,  lower  rentals,  industrial 
prosperity,  centered  about  the  checking  of  speculation  in 
land.  It  was  believed  that  if  the  speculators  did  not  keep 
land  ripe  for  building  out  of  use,  and  if  the  "Terraingesell- 

*  See  Extracts  from  the  proceedings  of  the  Budget  Gjmniittee  and  in 
the  Reichstag  in  Jahrbuch  der  Bodenreform,  voL  rx,  p.  233. 

*  Soziale  Praxis,  vol.  xix,  p.  760. 

*  In  a  speech  on  fiscal  problems,  in  1904,  Professor  Wagner  touched 
upon  this  point  when  he  said,  "  Now,  when  lurban  land  has  become  the 
common  object  of  speculation  and  changes  hands  as  readily  as  a  bank- 
note, now,  when  the  owner  mortgages  his  property  to  about  three-fourths 
of  its  value,  .  .  .  [another  kind  of  tax]  on  the  value  increment  is  neces- 
sary." Schriften  der  Gesellschaft  fiir  Soziale  Reform  (1904),  Heft  15,  pp. 
27-28,  30. 


180  THE  TAXATION  OF  LAND  VALUE 

schaften"  in  the  cities  did  not  monopolize  the  building 
trade  as  well  as  the  land,  the  housing  evils  would  disappear, 
building  operations  and  industry  would  prosper,  and  as  a 
result  of  the  increase  in  the  supply  of  land  and  houses,  the 
market  price  of  land  would  fall  to  the  normal  value,  while  the 
capitalized  rental,  and  therefore  rents,  would  be  reduced.* 

On  the  other  hand,  some  of  the  opponents,  agreeing  that 
the  tax  would  cause  a  decline  in  the  market  value  of  land, 
feared  the  consequences;  for  example,  the  stagnation  in 
land  sales.  Others  argued  that  the  effect  would  be  to  raise 
rent  because  the  tax  would  be  shifted  to  the  purchaser  and 
by  him  to  the  tenant.  And,  consequently,  the  market  price 
of  land  would  tend  to  appreciate.  As  regards  building 
operations,  it  was  claimed  by  some  that  overbuilding  would 
result,  that  by  putting  a  premium  on  improved  land,  even 
garden  and  other  open  spaces  would  be  built  upon  to  the 
detriment  of  social  health  and  welfare;  by  others,  that  the 
supply  of  houses  already  filled  the  demand,  that  there  is  no 
land  actually  ripe  for  building  which  is  kept  out  of  use, 
that,  therefore,  no  increase  in  building  operations  is  pos- 
sible. 

To  what  extent  experience  with  the  tax  justifies  the  con- 
tentions outlined  above,  we  shall  show  from  three  sources 
of  evidence,  the  results  of  two  oflScial  investigations  and  of 
the  valuable  study  by  Dr.  Berthold.  The  latter  throws  light 
on  the  working  of  the  imperial  tax,  the  two  former  on  that 
of  the  local  systems. 

The  following  statements  from  municipalities  were  re- 
ceived by  the  Mayor  of  Kiel  in  answer  to  his  inquiry  with 
regard  to  the  practical  working  of  the  tax:  ^ 

Frankfurt  a.  M. :  "The  expected  decline  in  land  transfers, 
which  was  feared  on  the  part  of  some,  has  failed  to  materi- 
alize. There  has  been  no  noticeable  stagnation,  nor  retro- 
gression in  the  development  of  land-value  increments." 

*  Cf.  Jahrbuch  der  Bodenreform,  vol.  ix,  pp.  217-18. 

•  Soziale  Praxis  (1907),  vol.  xvii,  p.  322.   (Translation  by  writer.) 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    181 

Cologne:  "Retarding  influences  as  regards  land  sales 
due  to  the  introduction  of  the  increment  tax  have  not  thus 
far  set  in." 

Gelsenkirchen:  "Regarding  the  practical  enforcement  of 
the  law,  no  unusual  diflSculties  have  presented  themselves. 
.  .  .  Nor  has  a  decline  in  land  transfers  or  in  building  opera- 
tions resulted  therefrom.  The  new  tax  bill  has  undoubtedly 
justified  itself,  and  will  continue  to  constitute  a  very  valu- 
able supplement  to  the  local  tax  system." 

Dortmund:  "Notwithstanding  the  fact  that,  prior  to 
the  enforcement  of  the  tax,  speculators  had  consummated 
all  the  land  transfers  possible  in  anticipation  of  the  law, 
the  tax  has,  nevertheless,  yielded  a  revenue  of  263,000 
marks.  There  have  been  150  land  sales,  and  of  these  149 
represented  purchases  by  the  larger  estate  holders  and  by 
speculators." 

Prior  to  the  enactment  of  the  "Reichszuwachssteuer** 
the  Imperial  Finance  Committee  caused  an  investigation 
to  be  made  inquiring  into  the  effects  of  the  tax  in  the 
localities.  Replies  from  more  than  three  hundred  commu- 
nities were  received.  Only  three  reported  that  there  had 
been  a  decrease  in  building  operations  since  the  introduc- 
tion of  the  tax.  In  three  towns  the  tax  was  said  to  have 
induced  the  "Terraingesellschaften"  to  build.  Only  ten 
claimed  that  rents  had  decreased  on  account  of  the  tax, 
seven  that  the  tax  had  caused  rents  to  increase;  while 
eleven  reported  that  the  tax  was  shifted  in  whole  or  in 
part  to  the  buyer.  ^ 

The  study  of  Dr.  Berthold  was  directed  to  determine 
from  oflScial  data  the  effect  of  the  imperial  tax  on  the 
realty  market  during  the  two  years'  operation  of  the  tax.* 
His  tables  comparing  the  number  and  value  of  the  trans- 
actions in  real  estate  from  1909  to  1913  show  conclusively 

1  Jahrbuch  der  Bodenreform  (1910),  Heft  4,  pp.  S15  ff.    Berthold, 
op.  cit.,  p.  IS. 
*  Ibid. 


182  THE  TAXATION  OF  LAND  VALUE 

that  in  the  majority  of  the  towns  there  were  fewer  trans- 
actions in  1911  and  1912  than  in  the  two  preceding  years. 
They  also  show  that  the  introduction  of  the  tax  was  not 
the  primary  cause  of  the  stagnant  conditions  of  the  market. 
The  depression  in  realty  operations  during  1911-12  is 
traceable  to  the  general  unfavorable  business  conditions,  to 
an  excess  of  vacant  houses,  to  the  tight  money  market, 
and  to  local  conditions.  Dr.  Berthold,  however,  does  not 
deny  that  the  agitation  relative  to  the  enactment  of  the 
"Reichszuwachssteuer,"  as  well  as  the  practical  impossi- 
bility of  calculating  before  the  sale  the  amount  of  tax,  may 
have  added  to  the  general  depression. 

A  second  point  of  inquiry,  less  conclusively  established, 
however,  was  with  regard  to  the  incidence  of  the  increment 
tax.  Only  where  the  property  is  indispensable  for  business 
purposes  will  the  seller  be  able  to  shift  the  tax.  But  in  such 
cases  the  seller  might  have  charged  the  higher  price  ir- 
respective of  the  tax.  In  certain  communities  attempts 
were  made  to  shift  the  tax,  but  not  always  successfully.^ 
As  yet  the  problem  of  the  incidence  of  the  "Zuwachssteuer  " 
has  not  been  solved  through  any  careful  research.  Authori- 
ties are,  nevertheless,  agreed  that  experience  confirms  the 
theory  that  the  tax  burdens  the  seller  only.  Neither  the 
market  price  of  land  nor  rentals  have  risen,  according  to  the 
testimony  of  oflficials  and  others.  Admitting  the  absence  of 
any  far-reaching  evidence  on  the  subject  of  incidence,  Dr. 
Boldt,^  for  example,  attempts  to  show  that  in  Diisseldorf 
where  no  increment  tax  is  in  operation,  the  average  rental 
and  value  of  the  land  are  higher  than  in  either  Essen 
or  Dortmund,  cities  of  the  same  industrial  type  and  of 
approximately  the  same  size,  but  which  levy  an  incre- 
ment tax.  There  is,  indeed,  little  evidence  to  show  that 
the  tax  has  been  shifted  to  the  buyer;  on  the  other  hand, 

*  Berthold,  op.  cit.,  p.  114. 

'  "  Verhandlungen  des  Vereins  fUr  Sozialpolitik,"  in  Schrijten  dea 
Vereins,  vol.  cxxxviii,  p.  46. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    183 

theory  holds  that  the  possibility  of  so  shifting  the  tax  is 
slight.  1 

One  of  the  causes  attributed  by  Dr.  Berthold  to  the 
stagnant  condition  of  realty  operations  was  the  difficulty 
of  obtaining  mortgage  loans,  especially  where  the  security 
was  a  second  mortgage.  This  scarcity  of  loan  funds,  added 
to  the  higher  rate  of  interest  on  mortgage  loans,^  hindered 
the  acquisition  of  property  and  interfered  with  building 
operations.  Nowhere,  however,  does  the  above-named 
writer  relate  this  scarcity  of  mortgage  loans  to  the  intro- 
duction of  the  increment  tax,  nor  does  he  seek  to  discover 
whether  any  causal  relationship  exists  between  the  two. 
Nevertheless,  the  losses  incurred  by  mortgagees  through 
foreclosures  and  the  hardships  that  the  payment  of  incre- 
ment tax  imposes  on  the  seller  of  property  heavily  mort- 
gaged may  have  had  some  deterrent  influence  in  the  loan 
market  on  such  security.  In  this  connection  the  argument 
of  another  writer'  who  favors  the  " Zuwachssteuer "  de- 
serves mention.  He  opposes  the  retroactive  feature  of  the 
tax  on  account  of  its  deleterious  effect  on  the  mortgage 
market  and  its  interference  with  credit. 

This  question  brings  us  to  the  consideration  of  the  effect 
of  the  tax  on  speculation  in  land.  Because  of  the  general 
dependence  of  land  and  building  speculators  in  Germany 
on  mortgage  loans,  a  weeding  out  process  of  the  insolvent 
operators,  those  who  operate  on  borrowed  capital,  was 
observed  during  the  depression  of  1911  and  1912.  If,  then, 
the  tax  on  value  increment  has  been  effective  in  checking 
second  mortgage  loans,  it  has  at  the  same  time  hindered 
speculation,  i.e.,  those  operations  which  are  carried  on 
almost  entirely  with  borrowed  capital.  Moreover,  the  pay- 
ment of  the  tax  has  in  many  such  cases  forced  the  seller  into 

*  Cf.  Weyerman,  "Die  UberwUlzungsfrage  bei  der  Wertzuwachs- 
steuer,"  in  Annalen  des  deutschen  Reichs  (1910),  vol.  xliii,  pp.  881  Jf. 

*  Berthold,  op.  cit,  pp.  97,  103  et  passim. 

'  Freudenberg,  Die  W ertzuwachssteuer  in  Baden,  pp.  3-4. 


184  THE  TAXATION  OF  LAND  VALUE 

bankruptcy.  Thus,  whether  the  depression  in  the  mortgage 
loan  market  can  be  attributed  to  the  tax  or  not,  the  tax  is 
said  to  have  actually  hindered  the  most  undesirable  kind  of 
speculation  in  land.  This  effect  of  the  tax  may  indeed 
account  for  the  inordinate  activity  of  the  "Terraingesell- 
schaften  "  and  the  pressure  brought  to  bear  upon  the  gov- 
ernment by  them  to  repeal  the  imperial  tax.^  The  rate  of 
tax,  however,  has  been  too  slight  to  restrain  speculative 
dealings  to  any  considerable  extent  in  cities  where  the 
value  of  the  land  has  appreciated  a  hundredfold  or  more, 
and  where  the  process  of  appreciation  continues.  ^ 

§  23.  Taxation  of  land  in  Kiao-chau.  The  justification 
for  treating  of  the  Kiao-chau  experience  with  land  taxa- 
tion in  this  chapter  lies  not  in  the  similarity  of  the  systems 
of  taxation  so  much  as  in  the  political  status  of  the  Far  East- 
em  province  with  respect  to  Germany.  There  are  those, 
indeed,  who  would  trace  the  local  increment  taxes  in  Ger- 
many to  the  Kiao-chau  experiment,  but,  as  has  been  shown 
in  the  previous  sections,'  there  is  sKght  cause  for  such  a 
hypothesis.  After  all,  the  system  of  taxation  in  Kiao-chau 
is  undoubtedly  part  and  parcel  of  the  larger  scheme  of  Ger- 
man "Sozialpolitik"  with  respect  to  this  province.* 

Kiao-chau  situated  in  Eastern  Asia  was  acquired  by 
Germany  in  1898,  and  according  to  a  treaty  with  China  was 
to  remain  under  German  protection  for  ninety-nine  years. 

*  Cf.  the  speech  of  Dr.  Jaeger  in  the  Reichstag  printed  in  Jahrbuch 
der  Bodenreform,  vol.  ix,  pp.  217-18. 

*  "Many  persons  hope  that  the  tax  will  quicken  the  utilization  of 
building  sites.  In  my  opinion,  however,  that  is  an  illusion,  for  just  as 
it  is  unlikely  that  a  comparatively  small  increase  in  the  tax  will  cause 
the  suburban  owner  to  give  up  his  gardens,  so  it  is  also  unlikely  that  the 
land  speculators  in  rapidly  growing  towns  will  be  compelled  to  any  extent 
to  sell  their  land,  which  will  after  a  longer  period  of  waiting  reimburse 
them  manyfold  for  the  burden  of  the  tax."  Ephraim,  "  Zur  EinfUhrung 
der  'Steuer  nach  dem  gemeinen  Wert'  in  Oldenburg,"  in  ZeiUchriJt  fur 
die  gesamte  Staatsvnssenschajt  (1910),  p.  161. 

'  See  supra,  §§  3-6. 

*  Denkschrift  betreffend  die  Entvncklung  des  Kiautichougebieis  (1904- 
06),  p.  8. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    185 

The  natives,  numbering  187,000,  are  Chinese.  Of  Euro- 
peans there  are  over  4000.^  Since  the  German  occupation, 
railways,  roads,  and  other  improvements  have  been  built, 
and  the  province  is  said  to  be  developing  industrially  and 
commercially. 

The  naval  authorities  in  charge  of  Kiao-chau,  with  a 
knowledge  of  the  land  situation  in  other  Eastern  provinces, 
in  1898,  introduced  a  bill  in  the  Reichstag  designed  to  pre- 
vent land  speculation  and  to  help  pay  the  vast  sums  ex- 
pended by  the  government  for  public  improvements.^  This 
Act  authorized  the  government  to  buy  up  from  the  natives 
any  land  needed  for  building  purposes.  The  price  was  to 
be  a  nominal  one,  i.e.,  what  the  land  was  worth  before  the 
German  occupation,  and  this  land  was  to  be  sold  again  to 
the  highest  bidders,  the  government  reaping  the  profit  of 
the  increased  value.  No  one  was  to  lease,  use,  or  sell  land 
for  any  purpose  whatsoever  without  the  permission  of  the 
government.'  In  fact,  this  land  policy  is  unique  in  its  re- 
strictions of  private  property  in  land. 

§  24.  At  the  same  time  that  the  land  bill  was  passed, 
the  following  tax  scheme  for  Kiao-chau  was  enacted.  An 
annual  direct  tax  of  six  per  cent  is  levied  on  the  land  which 
the  government  has  sold.*  It  was  provided  that  for  pur- 

*  Tsingtau,  the  chief  town,  had,  in  1902-03,  besides  soldiers  962  Euro- 
peans, 108  Japanese,  and  28,144  Chinese.  Denkschrift  betreffend,  etc. 
(1902-03),  p.  23.  Statistisckes  Jahrbuch  far  das  deutsche  Reich  (1914), 
p.  449. 

*  '  After  the  acquisition  of  Kiao-chau  it  was  to  be  expected  that  the 
value  of  the  land  would  appreciate  considerably.  Hence  it  was  feared 
that  the  native  Chinese  would  dispose  of  their  property  to  a  greater  or 
less  degree  for  a  little  temporary  profit.  It  was  a  question,  therefore, 
of  protecting  the  landed  interests  of  the  Chinese,  to  defend  them  against 
themselves,  and  to  prevent  a  dispossession  of  the  Chinese  by  the  white 
population."  Translated  from  Gaul,  Finamrecht  der  d.  Schutzgebiete  unter 
besonderer  Berucksichtigung  der  Steuergesetzgebung,  p.  163. 

»  Denkschrift  betreffend,  etc.  (1903-04),  p.  8. 

*  The  land  which  the  government  did  not  buy  from  the  natives  re- 
mained subject  to  the  slight  tax  prevalent  before  the  occupation.  The 
tax  is  on  an  average  200  cash  (about  30  pfennige)  for  614  square  metres. 
Ihid.,  p.  6. 


186     THE  TAXATION  OF  LAND  VALUE 

poses  of  assessment,  the  price  paid  for  the  land  was  to 
constitute  its  value  until  1902;  after  that  year  and  at 
regular  intervals,  the  land  was  to  be  revalued.  Besides 
this  direct  tax  the  Act  provided  that,  whenever  the  land 
should  be  sold,  thirty-three  and  one-third  per  cent  of 
the  net  profit,  or  value  increment,  should  revert  to  the 
government.  An  allowance,  or  compensation  for  im- 
provements, of  six  per  cent  was  to  be  deducted  from  the 
gross  increment.  In  every  case,  moreover,  the  govern- 
ment retained  the  option  of  purchase  at  the  price  de- 
manded by  the  owner. 

Bearing  in  mind  that  these  taxes,  as  well  as  the  policy  as 
a  whole,  were  to  prevent  land  speculation  and  to  provide 
more  dwellings,  we  may  note  that  the  government  was 
confronted  with  the  problem  of  making  the  purchasers 
improve  the  land  which  they  had  acquired.  In  other  words, 
the  tax  and  restrictions  did  not  prevent  owners  from  keep- 
ing their  land  in  an  unimproved  condition,  apparently  for 
speculative  purposes.  The  fact  was,  however,  as  is  very 
often  the  case  in  urban  communities,  that  the  land  remained 
undeveloped,  either  because  the  owner  lacked  the  means 
to  build,  or  because  the  time  was  unfavorable  for  building. 
But  this  frustrated  the  purpose  of  the  government.  The 
authorities  were  accordingly  authorized  to  repurchase  any 
unimproved  land  at  one-half  the  price  which  the  owners 
had  paid  for  it.  This  provision  was  found  ineflfective,  since 
the  authorities  lacked  the  ready  funds  to  repurchase  the 
land.*  In  1903,  therefore,  the  plan  was  conceived  of  in- 
creasing the  annual  tax  so  long  as  the  land  remained  un- 
developed. This  is  said  to  have  had  the  desired  effect. 
According  to  this  scheme  which  was  not  to  be  enforced 
until  1906,  land  not  utilized  for  the  purpose  for  which  it  had 
been  purchased  was  made  liable  to  an  annual  tax  of  nine 
per  cent  instead  of  the  usual  six  per  cent;  if  three  years 

*  Jahrbwk  der  Bodenreform  (1908),  vol.  IV,  p.  1S2;  C/.  Denkschrift 
betreffend,  etc.  (1902-03),  pp.  9-10. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    187 

passed  after  this  increased  rate  became  effective,  the  tax 
was  raised  to  twelve  per  cent;  and  this  three  per  cent  in- 
crease was  to  continue  with  every  three  years  until  an 
annual  tax  of  twenty-four  per  cent  had  been  reached. 
The  Act  provided,  furthermore,  that  whenever  the  land 
should  be  built  upon  and  improved,  the  tax  should  be 
reduced  to  six  per  cent.^ 

Another  provision  in  the  Land  Act  of  Kiao-chau  re- 
stricting the  property  rights  to  land  even  more  is  the  fol- 
lowing. The  government  not  only  retains  the  right  of 
repurchase,  but  in  the  case  of  land  which  has  remained 
unsold  within  twenty-five  years,  the  land  becomes  subject 
to  revaluation  and  a  tax  of  thirty-three  and  one-third  per 
cent  is  levied  on  the  value  increment. 

§  25.  What  has  been  the  effect  of  such  limitations  of  the 
right  of  private  property  on  the  real  estate  market?  While 
no  overcapitalization  of  the  value  of  land  under  such  re- 
strictions is  conceivable,  both  the  land  market  and  the 
values  are  sound  in  Kiao-chau.  Land  transactions  occur 
and  land  has  risen  in  value.^  An  official  describes  the  first 
public  sale  of  land  as  follows:  "In  spite  of  all  the  restric- 
tions necessary  to  nip  speculation  in  the  bud,  there  was  no 
lack  of  solvent  buyers  ready  unhesitatingly  to  bid  higher 
than  the  government's  estimates,  showing  thereby  that  the 
merchant  class  did  not  question  the  healthy  development 
of  the  colony."  ' 

In  considering  the  proceeds  from  the  land  taxes  as  shown 
in'the  table  below,  it  should  be  borne  in  mind:  (1)  that  the 
population  of  Kiao-chau  is  small;  (2)  that  land  is  exceed- 
ingly cheap  compared  with  European  countries;  (3)  that 

1  Jahrbuch  der  Bodenreform  (1908),  vol.  iv.  p.  1S2;  Cf.  Denkschrift 
betreffend.  etc.  (1902-03),  pp.  9-10. 

*  In  a  decade  land  is  said  to  have  increased  from  200  to  800  per  cent: 
from  $50  for  921  square  meters  the  value  had  risen  to  about  $150  or 
$160,  while  orchard  land  was  worth  in  1908  about  $200.  Denkschrift 
betreffend,  etc.  (1908-09),  pp.  37-38. 

»  Jahrbuch  der  Bodenreform,  March,  1911,  p.  37.  (Translated.) 


188 


THE  TAXATION  OF  LAND  VALUE 


sales  are  comparatively  few;  *  and  (4)  that  some  of  the  land 
has  not  advanced  in  price.  Thus,  there  were  only  thirty-one 
transfers  of  property  in  1908-09;  yet  they  yielded  no 
value-increment  duty.^ 

TABLE  SHOWING  YIELD  OF  THE  LAND  AND  INCREMENT 
TAXES,  RENTS  FROM  LEASEHOLDS,  AND  PROCEEDS 
FROM  LAND  SALES  IN  KIAO-CHAU » 


Land 

Tax 
(Marks) 

Rents 

Govern- 

Year 

from  lease- 
holds 
(Marks) 

ment  land 

sales 
(Marks) 

Value-increment 
duty 

1898-99 

22,170 

5,870 

1899-00 

31,371 

21,910 

1900-01 

52.765 

31,049 

. , 

1901-02 

62,956 

23,305 

1902-03 

63,961 

19,676 

24,422 

1903-04 

79,212 

34,113 

63,857 

$1,128.90 

1904-05 

87,498 

60,910 

195,975 

1,474.70 

1905-06 

139,935 

83,013 

149,389 

417.34 

1906-07 

117,591 

91,686 

87,865 

2,103.66 

1907-08 

112,861 

75,877 

73,332 

301.28 

1908-09 

121,017 

59.401 

83,069 

000.00 

It  is  necessary  to  point  out  that  the  government  must 
rely  on  other  sources  than  the  land  for  the  budget.  Tak- 
ing the  revenue  from  the  land  taxes,  plus  that  from  the 
rents  and  from  the  public  land  sales,  we  find  that  it  con- 
stituted, in  1906-07,  about  twenty-seven  per  cent,  while, 
in  1908-09,  only  nine  per  cent  of  the  total  expenditures.* 

*  The  following  show  the  number  of  purchasers  of  land:  — 

1902-03,  143  Europeans,  151  Chinese 
1903-04,158  "  162       " 

1904-05,  197  "  174       " 

1905-06,210  "  194       " 

«  Denkschrift  betreffend,  etc.  (1908-09),  p.  12. 

*  Data  given  in  Denkschriften  betreffend  die  Entwicklung  des  Kiautsehou- 
gehiets. 

*  The  total  revenue  for  1906-07  amounted  to  1,546,489  marks;  in 
1908-09,  to  2,365,981  marks.   Ibid.  (1908-09),  pp.  66-67. 


TAX  ON  VALUE  INCREMENT  IN  GERMANY    189 

It  is,  however,  not  so  much  from  the  standpoint  of  revenue 
as  from  that  of  a  sound  land  policy  that  the  Kiao-diau 
experiment  offers  interesting  study.  And  yet,  in  consider- 
ing the  land  policy  and  the  taxes  on  land  value  in  operation 
since  1898  in  that  province,  we  must  bear  in  mind  the  ex- 
ceptional circumstances  under  which  the  government  ac- 
quired possession  of  the  land.  The  problem  in  older  coun- 
tries, where  the  principle  of  private  ownership  of  land  is 
deep-rooted,  is  far  more  complex. 


CHAPTER  V 

THE  ENGLISH  LAND-VALUE  DUTIES 

§  1.  The  enactment  of  the  duties  on  land  value  which 
constitute  Part  I  of  the  Finance  Act,  1909-10,  marks  a 
decided  departure  in  the  jQscal  policy  of  England.  This  fact, 
aside  from  the  controversy  with  the  House  of  Lords  over 
the  measure,  has  evoked  widespread  criticism  and  inter- 
est among  students  and  statesmen.  The  latter,  indeed, 
regarding  the  new  taxes  as  social  reform,  not  fiscal,  legisla- 
tion, have  questioned  the  propriety  of  incorporating  the 
land  taxes  in  the  budget.  Nevertheless,  whatever  founda- 
tion there  exists  for  the  prevailing  impression  that  Parlia- 
ment was  carried  away  by  the  whirlwind  of  socialism  and 
other  "isms"  which  were  sweeping  the  country,  a  study  of 
the  attempted  legislation  prior  to  the  enactment  of  the 
Finance  Act  reveals  the  fact  that  the  change  in  fiscal  policy 
was  inevitable. 

To  set  forth  the  fiscal  causes  of  the  new  taxes  which 
are  generally  overlooked,  and  to  demonstrate  their  un- 
precedented character,  it  is  important  both  to  show  the 
relation  between  landownership  and  land  taxation  in  the 
United  Kingdom,  and  to  trace  the  movement  toward 
land-value  taxation. 

The  history  of  landlordism  and  land  taxes  throws  light 
on  the  strenuous  opposition  of  the  Lords  to  the  Finance 
Act  which  in  1909  threatened  the  abolition  of  the  Upper 
House  of  Parliament.  In  view  of  the  fact  that  the  Lords 
are  in  the  main  the  landowners  of  England,  the  small  extent 
to  which  land  contributes  to  the  support  of  the  govern- 
ment is  significant.  Property  owners  contribute  to  the  fol- 


THE  ENGLISH  LAND-VALUE  DUTIES         191 

lowing  sources  of  public  revenue.  First,  there  is  the  so- 
called  annual  land  tax  which  since  Pitt's  redemption 
scheme  in  1798  has  yielded  less  than  one  million  pounds,* 
or  less  than  half  its  yield  in  1692  when  instituted.^  This 
nominal  land  charge,  it  will  be  recalled,  is  based  on  a  valua- 
tion made  more  than  two  centuries  ago,  and  is  unequally 
apportioned  among  the  counties  of  England.  Secondly, 
there  is  Schedule  A  of  the  income  tax  charged  on  the  gross 
rental  of  real  property.'  Thirdly,  under  the  system  of 
rating  by  the  local  authorities,  land  and  its  improvements, 
including  buildings,  not  only  yield  over  eighty  per  cent  of 
the  local  tax  receipts,  but  also  form  the  principal  source  of 
local  revenue.^  In  addition  to  the  rates,  tithes  are  still 
levied  on  real  property  in  some  parts  of  the  United  King- 
dom. Fourthly,  land  in  conjunction  with  other  property  is 
subject  to  death  duties,  or  inheritance  tax,  levied  for  im- 
perial purposes.  Only  in  this  case  is  the  basis  of  assessment 
the  capital  value  of  the  property. 

To  estimate  to  what  extent  the  English  landlords  are 
burdened  by  these  charges,  it  is  necessary  to  analyze  the 
methods  of  assessment  and  levy  of  these  taxes  so  as  to  ascer- 
tain their  incidence. 

In  the  first  place,  it  was  estimated  by  the  Commission  of 
1901  that  ratable  property  (including  structures  and  other 
improvements)  contributed  about  seventeen  and  one-half 

*  Cf.  Dowell,  History  of  Taxation  and  Taxes  in  England,  vol.  ii,  pp. 
239-40.  In  1907-08  the  net  receipts  were  £710,000.  Cf.  Pari  Debates 
(1908),  vol.  cxcvni,  p.  2075. 

*  Originally  this  was  a  general  property  tax  imposed  (1)  on  those 
possessing  personal  property,  (2)  on  those  holding  any  public  office  or 
employment  of  profit,  (3)  on  those  possessing  land,  but  because  of  the 
evasion  of  the  first  two  from  assessment,  the  burden  fell  on  land  alone. 
Cf.  Dowell,  op.  cit.,  vol.  iii,  pp.  93-97. 

*  Pari.  Debates  (1909),  vol.  ii,  p.  1870.  There  is  a  maximum  reduction 
of  one-eighth  of  rental  in  respect  of  agricultural  land  and  one-sixth  in 
respect  of  buildings. 

*  In  1909-10  the  rates  constituted  forty-nine  per  cent  of  the  total 
revenue  of  the  local  bodies  of  England  and  Wales,  not  counting  the 
loans.   Statesman's  Year  Book  (1913),  p.  49. 


192  THE  TAXATION  OF  LAND  VALUE 

per  cent  to  the  imperial  tax  receipts;  to  the  local  budgets, 
eighty-two  per  cent  of  all  the  tax  revenue.^  But  from  the 
standpoint  of  incidence,  it  is  important  to  differentiate  be- 
tween the  proportions  faUing  on  land  and  improvements 
respectively,  for  according  to  the  best  authorities  on  taxa- 
tion,^  the  tax  on  buildings  is  more  likely  to  fall  on  the  oc- 
cupier than  on  the  landowner  or  building-owner.  The  pro- 
portion that  falls  on  land,  irrespective  of  the  buildings,  has 
been  variously  estimated  and  differs  in  Scotland  and  Ire- 
land from  the  proportion  in  England  and  Wales.  Accord- 
ing to  Bastable,  land  under  Schedule  A  yielded  about 
twenty-three  and  one-half  per  cent,  houses  seventy-six  and 
one-half  per  cent  (1900),  while  under  the  local  systems 
about  one-sixth  of  the  rates  was  derived  from  land,  and  five- 
sixth  from  houses.'  He  furthermore  estimated  that  land 
in  the  United  Kingdom  (including  all  improvements  other 
than  houses)  contributed  (1900)  about  £12,500,000,  which 
constituted  about  nine  per  cent  of  the  total  tax  revenue  for 
imperial  and  local  taxation.* 

Then,  when  we  consider  the  possibility  of  capitalization 
and  amortization  in  cases  of  taxes  on  real  property,  the 
burdensomeness  of  taxation  on  the  landowners  appears 
even  less.  For  according  to  the  theory  of  amortization  the 
whole  tax  on  land  or  so  much  of  the  tax  as  exceeds  the  gen- 
eral burden  of  taxation  on  all  capital  or  income  is  capitalized 
and  the  value  deducted  from  the  selling  price  of  the  prop- 
erty, so  that  the  purchaser  through  this  reduction  in  price 
becomes  exempt  from  the  tax,  while  the  seller  loses  the 
whole  amount  of  the  capitaUzed  tax.    In  case  of  taxes  of 

»  Pari.  Debates  (1909),  vol.  i,  p.  892. 

*  According  to  Seligman,  Shifting  and  Incidence  of  Taxation  (ed. 
1899),  p.  307,  even  Schedule  A  must  be  treated  as  a  tax  on  real  property 
to  ascertain  the  incidence  of  that  part  of  the  income  tax. 

»  Bastable,  Public  Finance  (ed.  1903),  pp.  431-32. 

*  Ibid.  The  percentage  was  computed  with  the  aid  of  data  from  the 
Statesman's  Year  Book  (1900),  pp.  45, 55;  the  total  tax  revenue,  local  and 
imperial,  was  given  for  the  United  Kingdom  as  £134,821,081. 


THE  ENGLISH  LAND-VALUE  DUTIES         193 

long  standing,  therefore,  the  present  owner  is  burdened 
only  by  any  increase  in  rate  since  he  came  into  ownership. 
The  doctrine  is  especially  applicable  to  the  imperial  nomi- 
nal land  tax  in  England,  since  the  assessment  has  not  only 
remained  unchanged  for  several  centuries,  but  the  tax  has 
either  been  redeemed  or  has  long  since  been  "absorbed" 
in  the  selling  price,  because  the  apportionment  of  the  quota 
among  the  counties  has  not  changed.  It  is  held  by  Blun- 
den  ^  that  even  the  local  rates  have  to  some  extent  been 
thus  capitalized  and  ceased  to  be  a  burden.  Whether  this 
is  true  or  not,  there  are,  as  we  shall  show  below,  further 
reasons  for  believing  that  but  a  small  part  of  the  rates  are 
borne  by  the  landowners. 

Again,  inasmuch  as  it  is  upon  the  rates  that  the  local 
governments  chiefly  depend  for  revenue,  and  inasmuch  as 
ratable  property  is  heavily  burdened  for  local  tax  pur- 
poses, ^  it  is  of  importance  in  this  conection  that  the  bur- 
den falls  mainly  upon  the  occupier,  not  upon  the  landlord. 
The  reasons  are:  (1)  The  occupier  pays  the  tax  in  the  first 
instance,  and  through  various  causes  which  we  need  not 
dwell  upon,'  he  is  unable  to  recoup  himseK  for  the  tax  by 
deducting  it  from  his  rent.  The  following  table  (Distribu- 
tion of  the  Burden  of  the  Rates  in  England  and  Wales  in 
1891,  on  page  194)  shows  that  only  15.31  per  cent  of  the 
rates  on  land  and  houses,  in  1891,  fell  on  real  property,  or 
rather,  on  the  land  owners  and  lessees. 

*  Local  Taxation  and  Finance,  p.  43.  "But  there  appears  to  be  good 
grounds  for  the  conclusion  that  the  burden  is  mainly,  as  Dr.  Giffen  sug- 
gested in  1871,  'on  the  property,  and  not  on  the  individuals  who  have 
incomes  from  it.' " 

'  The  average  rate  per  pound  on  ratable  rental  increased  from  3s. 
Sid.  to  5a.  7|d.  from  1882  to  1902.  Cf.  Armitage-Smith,  Primnples  and 
Methods  of  Taxation,  p.  161. 

*  See  Sehgman,  Shifting  and  Incidence  of  Taxaiion,  pp.  246  ff. 


194 


THE  TAXATION  OF  LAND  VALUE 


DISTRIBUTION  OF  THE  BURDEN  OF  THE  RATES  IN 
ENGLAND  AND  WALES  IN   1891  ^ 


On  real 
property 
(per  cent) 

On  personal 
property 
(per  cent) 

On  occupiers' 

income 

(per  cent) 

On  consumert' 

income 

(per  cent) 

Lands  and  tithes 
Houses 

15.31 
3.59 

14.00 
2.82 

56.4 

4.29 

Railways 

Other  property.. . 

3.69 

Total 

18.90 

16.82 

56.40 

7.88 

(2)  Since  the  lessee  almost  always  contracts  to  pay  the 
taxes,  any  increase  in  the  rate  of  tax  will  be  borne  by  the 
lessee,  at  least  until  the  expiration  of  the  lease.  Now,  in 
England,  the  builder  is  very  often  a  lessee  and  cannot 
recoup  himself  for  any  increase  in  the  rate  until  his  lease 
expires.  (3)  Non-income-bearing  land,  irrespective  of  its 
value,  is  exempt  from  rating.  Thus,  in  spite  of  the  enor- 
mous increase  in  urban  values,  land  in  England  and  Wales 
contributed,  in  1894,  a  smaller  percentage  of  the  whole  tax 
than  in  1814,  as  shown  below:  — 

CONTRIBUTION   OF   PROPERTY  TO   THE  TOTAL  ASSESS- 
MENT OF  THE  LOCALITIES,  1814-1894  ^ 


18U 

(per  cent) 

1843 
(per  cent) 

1868 
(per  cent) 

18H 
(per  cent) 

Land 

69.28 

27.84 

2.88 

49.10 

41.44 

9.46 

33.20 
47.27 
19.53 

20.9 

Houses 

63.7 

Railways  and  other  property  . . . 

15.4 

*  Blunden,  op.  cit.,  p.  62.  There  is  no  reason  to  think  that  conditions 
of  incidence  have  changed  much  since  1891,  for  the  method  of  assessment 
is  the  same. 

*  Data  gathered  from  Goschen,  Report  on  Local  Taxation,  p.  23;  and 
from  Report  of  tlie  Royal  Commission  on  Local  Taxation  (Cd.  9528),  1899, 
pp.  44-45. 


THE  ENGLISH  LAND-VALUE  DUTIES         195 

Furthermore,  this  system  of  assessment  on  rental  rather 
than  on  capital  value,  which  exempts  the  owner  of  imde- 
veloped  land  from  taxation,  has  contributed  most  to  the 
evasion  by  the  landowner  of  a  burden  of  taxation  propor- 
tionate to  his  ability  or  his  benefit.  The  influence  of  this 
class,  in  fact,  is  seen  in  their  resistance  to  taxation  on  the 
basis  of  capital  value.  Thus  it  was  not  until  1894  that  the 
death  duties  were  made  to  apply  to  real  property  in  the 
same  way  as  to  personal  property,  that  is,  on  the  basis  of 
capital  value  assessment.^  And  until  the  enactment  of  the 
Finance  Act,  1909-10,  the  death  duties  were  the  only  tax 
on  real  property  assessed  on  capital  value. 

Finally,  the  special  treatment  of  agricultural  land  is 
noteworthy.  The  exemption  in  recent  years  of  about 
£2,000,000  annually  from  the  tax  on  agricultural  land 
under  Schedule  A  is  generally  considered  to  have  been 
a  boon  to  the  landlords,  rather  than  to  the  farmers  whom 
it  was  intended  to  relieve.^  The  cause  of  the  remission  of 
that  amount  is  of  course  the  decline  in  the  value  of  agri- 
cultural land.  But  this  decline,  which  has  made  the  actual 
rent  paid  by  the  tenant  farmer  exceed  the  economic  rent, 
the  rent  warranted  by  the  produce  obtained,  has  shifted 
the  burden  of  the  taxes  from  the  landlord  to  the  tenant.' 
A  remission  of  the  taxes,  therefore,  is  only  apparently  a 

*  For  the  opposition  of  the  landowners  to  this  measure  see  Wagner, 
"  Die  Englische  Erbsteuerreform  von  1894  "  in  Zeitschrift  fur  Volksmrt- 
schaft,  Socialpolitik  u.  Verwcdtung  (1899),  p.  323. 

*  See  Agricultural  Rates  Act  (1896), 

»  Pari.  Debates  (1909),  vol.  v.  p.  627.  Cf.  also  Seligman,  Shifting  and 
Incidence  of  Taxation,  p.  307.  The  condition  of  agricultural  production 
in  England  is  peculiar.  The  depression  has  caused  the  land  to  become 
depreciated,  so  that  the  farmers,  because  of  the  immobility  of  the  capital 
invested  and  their  own  inability  to  enter  other  employments  readily, 
are  paying  more  than  the  usual  rack  rent  or  economic  rent;  hence  the 
tax  paid  by  them  in  the  first  instance  is  not  shifted  to  the  landowner. 
"Although  the  farmer  has  been  struggling  to  adjust  his  rent  to  lower 
prices,  the  process  has  been  a  slow  one;  and  the  fall  in  actual  rents  has 
not  kept  pace  with  the  fall  of  economic  rent  due  to  these  lower  prices," 
Seligman,  ibid.,  p.  232. 


196  THE  TAXATION  OF  LAND  VALUE 

relief  to  the  farmer;  in  reality  the  position  of  the  landlord, 
when  a  renewal  of  the  lease  is  sought  by  his  tenants,  is 
thereby  strengthened,  and  the  landlord  can  resist  a  re- 
duction of  the  rent  which  conditions  would  otherwise  war- 
rant.^ 

Thus  it  is  clear  that  in  singling  out  the  landowning 
class  for  special  taxation,  and  in  choosing  land  taxes, 
the  incidence  of  which  is  supposedly  certain,  the  Lloyd 
George  Budget  is  a  departure  from  precedent  and  from 
the  tax  legislation  hitherto  favorable  to  the  landowning 
class. 

It  remains  to  show,  further,  that  the  enactment  of  the 
land-value  duties  was  not  the  revolutionary,  unreflected 
measure  of  a  socialistic  parliament.  The  problem  of  taxing 
land  value  had  been  well  deliberated  upon,  and  the  argu- 
ments pro  and  con  thoroughly  weighed  by  the  various 
Select  Committees  who,  since  1891,  had  been  delegated 
by  Parliament  to  investigate  the  intricate  problem  of  local 
taxation.  The  anomalous  feature  in  this  movement  is, 
rather,  that  the  outcome  of  the  agitation  among  local  au- 
thorities for  land-value  rating  should  have  resulted  first  in 
an  imperial  rather  than  in  a  local  tax. 

§2.  Discontent  with  the  rating  system  by  which  the 
landowners  largely  escaped  taxation,  while  the  occupiers 
bore  the  heavier  burden,  early  asserted  itself.  The  reform 
movement,  after  years  of  agitation,  became  concentrated 
upon  the  following  demands:  (1)  the  division  of  rates  be- 
tween occupier  and  owner;  ^  (2)  the  taxation  of  land  value; 
(3)  "special  assessment"  taxation.'  We  are  concerned 
here  with  the  second  reform  advocated. 

The  expediency  of  taxing  land  value  was  raised  by  the 

*  Cf.  also  J.  S.  Nicholson,  Rates  and  Taxes  as  Affecting  Agriculture, 
where  the  incidence  of  the  land  tax  is  shown.  Cf.  also  Row-Fogo,  An 
Essay  on  the  Reform  of  Local  Taxation  in  England,  pp.  171-82. 

*  The  system  whereby  the  owner  pays  one-half  the  tax  and  the  occu- 
pier the  other  half  is  in  vogue  in  Scotland  and  Ireland. 

*  Cf.  Blimden.  op.  cit.,  chapters  vii,  vin,  and  ix. 


THE  ENGLISH  LAND-VALUE  DUTIES  197 

Housing  Committee  in  1884.^  In  its  report  the  committee 
recommended  that  "land  available  for  building  in  the 
neighborhood  of  populous  centers"  be  rated  for  local  pur- 
poses at  four  per  cent  of  its  selling  value.  The  purpose  of 
the  proposal  was  to  relieve  the  congestion  of  population. 
In  1892,  the  Select  Committee  on  Town  Holdings  re- 
ported unfavorably  on  the  taxation  of  vacant  building 
land  as  well  as  on  the  proposition  of  separate  valuation  of 
land  and  of  improvements.  The  proposal  of  the  Draft  Re- 
port Committee  to  tax  land  on  the  selling  value  at  a  higher 
rate  than  buildings,  because  land  receives  an  exceptional 
value  through  the  growth  of  towns,  while  buildings  repre- 
sent an  outlay  of  capital  which  is  discouraged  by  taxa- 
tion,* was  rejected  by  the  majority  as  impracticable.  The 
following  conclusions  of  the  Select  Committee,  which  re- 
fused to  recognize  the  expediency  of  land-value  taxation, 
were  adopted: ' 

"  (1)  Ground  rents  and  feu^  duties  are  already  taxed,  as 
being  included  in  the  ratable  value  of  the  town  holding 
on  which  they  are  secured.  They  do  not  constitute  a  fresh 

*  See  Second  Series  of  Memoranda  and  Extracts  Relating  to  Land  Taxa- 
tion (Cd.  4845),  1909,  pp.  71  Jf.  It  is  interesting  to  note  that  the  late 
King  of  England,  Edward  VII,  then  Prince  of  Wales,  was  a  member  of 
that  Committee.  See  Report  of  the  Housing  Committee  (Cd.  4402),  1885. 

*  House  of  Commons  Paper  214  (1892),  pp.  xcii,  xxxvi.  The  argu- 
ments used  in  this  draft  report  are  the  usual  ones.  "The  growth  of  towns 
has  added  an  exceptional  value  to  town  lands.  Such  value  is  maintained, 
and  has  to  a  great  extent  been  created,  by  municipal  expenditure,  and  it 
is  therefore  just  that  those  who  are  in  receipt  of  the  annual  returns  from 
town  lands  should  contribute  a  substantial  proportion  of  it  to  defray  the 
municipal  expenditure  of  which  they  thus  reap  the  fruits. .  .  .  Buildings 
represent  the  direct  outlay  of  capital  and  their  return  depends  substan- 
tially upon  their  cost.  Heavy  rates  upon  buildings  as  opposed  to  land 
tend  to  stimulate  the  erection  and  use  of  inferior  houses.  .  .  .  The  annual 
value  of  land  may  be  considered  as  a  net  return  from  an  improving  prop- 
erty, whereas  that  of  buildings  is  a  gross  return  from  a  wasting  prop- 
erty, and  it  is  unfair  that  they  should  be  taxed  at  the  same  rate  in  the 
pound,"  etc. 

»  Ibid. 

*  Feu  tenancy  in  Scotland  is  perpetual,  the  rent  being  a  fixed  amount. 


198  THE  TAXATION  OF  LAND  VALUE 

matter  of  assessment  hitherto  untouched  as  is  often  sup- 
posed. The  imposition  of  a  direct  assessment  upon  such 
ground  rents  and  feu  duties  as  distinguished  from  the 
assessed  vakie  of  the  house  itself,  as  at  present  rated, 
would  lead  to  anomalies  and  inequalities  and  has  been 
generally  abandoned.  .  .  . 

"  (2)  The  real  as  opposed  to  the  apparent  incidence  of 
land  taxation  in  towns  falls  partly  upon  the  owner  of 
the  land,  partly  upon  the  house  owner,  and  partly  upon 
the  occupier.  The  proportions  in  which  the  burden  is  dis- 
tributed are  difficult  to  determine  and  depend  upon  a 
variety  of  circumstances  among  which  the  demand  and 
supply  of  houses  is  the  most  important. 

"(3)  Owners  of  ground  rents,  with  or  without  rever- 
sions, derive  no  appreciable  benefit  from  local  public  ex- 
penditure for  current  purposes.  .  .  . 

"(4)  The  burden  of  such  increased  land  taxation  as 
was  not  in  contemplation  of  the  parties  on  entering  into 
leases  falls  on  the  lessee,  unless  the  occupier  has  been  un- 
able to  shift  it.  But  as  regards  lessees,  the  unforeseen  in- 
crease in  the  value  of  their  properties  has,  in  most  cases, 
more  than  made  up  to  them  for  the  unexpected  burden 
of  increased  rates." 

Four  years  later  the  Royal  Commission  appointed  to 
inquire  into  the  subject  of  local  taxation  reached  similar 
conclusions  in  rejecting  the  proposition  of  land-value  taxa- 
tion. After  interviewing  numerous  witnesses  and  after  an 
extensive  investigation  their  report  was  published  in  1901.^ 
Again,  a  separate  report  on  "Urban  Rating  and  Site  Val- 
ues," by  a  committee  consisting  of  Lord  Balfour  of  Bur- 
leigh,2  Lord  Blair  Balfour,  Sir  Edward  Hamilton,  Sir 
George  Murray,  and  Mr.  James  Stuart,  dissented  from 

*  Final  Report  of  His  Majesty's  Commission  Appointed  to  Inquire  .  . . 
Local  Taxation  (Cd.  638),  1901. 

'  The  same  Lord  Balfour  of  Burleigh  vigorously  opposed  the  Finance 
Act,  1909-10,  in  the  House  of  Lords. 


THE  ENGLISH  LAND-VALUE  DUTIES         199 

the  majority's  findings.  Their  recommendations  were 
very  similar  to  those  of  the  Draft  Report  of  1892,  with  this 
additional  proposal,  that  the  institution  of  site-value  rat- 
ing by  the  locality  be  made  optional.^ 

The  London  County  Council  and  the  Glasgow  Council 
were  meanwhile  active  in  discussing  the  question  of  rating 
on  site  value.  In  the  reports  of  the  London  County  Coun- 
cil of  1889  and  1893  the  adoption  of  this  system  was 
recommended.  The  council  actually  undertook  to  make  a 
valuation  of  all  the  land  within  London.*  Similarly,  Glas- 
gow, as  early  as  1891,  and  again  in  1895,  drew  up  reports 
favoring  the  rating  of  land  value.'  In  the  House  of  Com- 
mons also  considerable  discussion  took  place  on  the  sub- 
ject, not  only  in  regard  to  local  taxation,  but  also  in  re- 
gard to  Schedule  A.*   To  carry  out  the  recommendation 

*  The  advantages  of  taxing  land  value  were  enumerated  in  this  minor- 
ity report  as  follows:  (1)  It  would  conduce  to  placing  the  urban  rating 
system  on  a  more  equitable  and  thus  sounder  basis;  (2)  it  would  make  the 
ground-owner  and  lessee  having  an  interest  in  the  land  contribute  some- 
what more  than  under  the  old  system  to  local  taxation;  (3)  it  should  go 
some  way  toward  putting  an  end  to  agitation  for  unjust  and  confisca- 
tory measures;  (4)  it  would  enable  deductions  for  repairs  to  be  made  solely 
in  respect  of  the  buildings;  (5)  it  would  tend  to  lighten  the  burdens  in 
respect  to  buildings  and  thus  aid  in  solving  the  urgent  housing  problem; 
(6)  it  would  tend  to  rectify  inequalities  between  districts  and  between 
owners.  Report,  etc.  (Cd.  638),  1901,  p.  176. 

«  Cf.  Pari.  Debates  (1907),  vol.  CLXXxn,  p.  46;  Also,  1909,  vol.  v, 
p.  1221.   Cf.  British  Pari.  Papers  (Cd.  9150),  1899,  p.  13. 

*  For  a  discussion  of  the  London  Coimty  and  Glasgow  resolutions 
regarding  the  taxation  of  land  value  see  Smart,  Taxation  of  Land  Values 
and  the  Single  Tax,  chapters  n  and  in.  Not  only  did  the  Corporation  of 
Glasgow  in  1897  pass  resolutions  declaring  the  taxation  of  land  value 
"the  most  equitable  method  of  removing  the  present  inequalities  of  local 
taxation,"  but  in  the  same  year  the  Glasgow  City  assessor  proposed  an 
increment  tax  on  land.  See  British  Pari.  Papers  (C.  9319),  1899,  pp. 
257-58. 

*  In  view  of  later  events  the  following  speech  of  Mr.  Billson,  M.P., 
containing  a  prophecy  is  interesting:  "In  connection  with  the  property 
tax  under  Schedule  A  the  law  lays  down  that  land  should  be  charged 
according  to  what  it  produces,  and  not  according  to  its  real  value.  When 
this  property  tax  was  first  put  in  force  about  fifty  years  ago,  the  condi- 
tions were  somewhat  different,  and  there  is  now  in  all  our  large  towns  a 


200  THE  TAXATION  OF  LAND  VALUE 

of  the  minority  report  of  1901,  Mr.  Trevelyan  the  follow- 
ing year  introduced  the  "Urban  Site  Value  Rating  Bill" 
in  the  House  of  Commons.  As  the  majority  reports  of  the 
special  committees,  however,  had  opposed  the  new  tax, 
Trevelyan's  measure  could  only  meet  defeat.^  But  the 
game  had  been  started,  and  the  following  year.  Dr.  Mac- 
namara  presented  "A  Bill  to  provide  for  the  Separate 
Assessment  and  Rating  of  Land  Values."  ^  This  bill  failed 
to  secure  a  second  reading,  although  by  an  adverse  major- 
ity of  only  thirteen  votes.' 

The  purpose  of  the  bill,  as  Dr.  Macnamara  set  forth 
in  the  introductory  paragraph,  was  "to  give  urban  au- 
thorities a  new  source  of  revenue  in  relief  of  the  present 
rates  and  so  to  diminish  the  existing  burdens  on  building 
enterprise."  The  rate  was  to  be  one  penny  in  the  pound 
and  "to  be  levied  on  the  capital  value  of  all  land,  whether 
occupied  or  not,  as  distinct  from  the  value  of  any  build- 
ings or  structures  on  the  land."  Again  that  year,  a  "Land 
Valuation  Bill "  was  presented  in  the  House  by  a  Scotch 
member.  It  proposed  to  rate  only  unoccupied  land.  But 
after  the  first  reading  the  bill  was  dropped. 

Then  more  bills  followed.  In  1904,  another  "Land  Val- 
ues (Assessment  and  Rating)  Bill"  was  given  a  second 
reading,^  but  no  further  action  was  taken.  This  was  suc- 
ceeded, in  1905,  by  still  another  bill  entitled  "Land  Values 
Taxation  (Scotland)  Bill"  which  proposed  to  empower  the 

great  deal  of  knd  that  escapes  taxation  which  ought  to  bear  taxation. 
Large  quantities  of  land  lie  idle  and  produce  nothing  and  consequently 
such  land  does  not  come  within  the  purview  of  this  taxation.  And  why 
not?  ...  I  hope  that  he  himself  [the  Chancellor  of  the  Exchequer]  will 
introduce  a  very  considerable  measure  for  the  taxation  of  land  values,  but 
if  he  does  not  some  Tnore  enterprising  Chancellor  of  the  Exchequer  wiU  do  so 
in  the  future."  Pari.  Debates  (1900),  vol.  Lxxx,  pp.  1247-50.  (Italics  mine.) 

1  Ibid.,  (1902),  vol.  ciii,  p.  475. 

*  It  is  significant  that  David  Lloyd  George  supported  this  and  subse- 
quent measures  to  tax  land  value. 

»  Ibid.,  (1903),  vol.  cxvni,  p.  400. 
I  *  Ibid.,  vol.  cxxix,  p.  480. 


THE  ENGLISH  LAND-VALUE  DUTIES        201 

Town  Councils  of  the  burghs  to  impose  a  tax  not  exceed- 
ing two  shiUings  in  the  pound  on  the  annual  rental  of  all 
land.  The  annual  rental,  however,  was  to  be  calculated 
at  four  per  cent  of  the  selling  price  of  the  land,  exclusive 
of  the  buildings  upon  it.  It  furthermore  proposed,  diverg- 
ing in  this  respect  from  the  preceding  bills,  that  the  tax 
should  be  deducted  by  the  tenant  or  lessee  who  paid  it 
from  the  lessor  or  owner,  irrespective  of  the  stipulation 
of  existing  contracts.  As  was  to  be  expected,  this  measure 
met  a  fate  similar  to  the  preceding  ones.  Its  failure,  how- 
ever, did  not  deter  the  partisans  of  land-value  rating  from 
introducing  another  bill  in  the  same  year.  The  contents 
of  Mr.  Brunner's  bill  were  not  unlike  those  of  the  former 
measure,  except  for  the  stipulation  to  respect  contracts. 
It  provided  that  only  under  a  lease  or  agreement  made 
subsequent  to  the  enactment  of  the  bill,  was  the  occupier 
authorized  to  deduct  the  tax  from  the  rental.  Then,  too, 
instead  of  four  per  cent,  three  per  cent  of  the  capital  value 
was  to  constitute  the  annual  value  for  assessment  pur- 
poses.^ Although  voted  a  second  reading  by  a  majority  of 
ninety,  nothing  further  was  done  with  the  proposal.  Mr. 
Ferguson's  measure,^  the  "Land  Value  Assessment  (Scot- 
land) Bill"  was  presented  in  the  same  year  and  was  de- 
feated. In  that  year,  also  a  deputation  of  rating  authori- 
ties waited  upon  the  Prime  Minister  relative  to  the  matter 
of  site-value  rating. 

§  3.  These  persistent  efforts  on  the  part  of  the  ad- 
herents of  the  tax  were  destined  to  bear  fruit.   Thus  in 

^  "Its  main  object,"  said  Trevelyan,  its  supporter,  "was  to  make  an 
assessment  of  the  land  values  of  oiu:  towns  and  urban  districts,  to  place 
upon  the  rate-book  a  second  column,  which  would  consist  of  assessments 
at  three  per  cent  of  the  selling  values,  and  to  provide  that  where  the  new 
assessment  in  the  case  of  any  piece  of  property  amounted  to  a  larger  sum 
than  the  present  assessment  on  the  annual  value  the  rate  should  fall 
upon  that  new  assessment."   Pari.  Debates  (1905),  vol.  CXLV,  pp.  207-08. 

*  The  sponsor  of  this  bill,  Mr.  Ferguson,  had  been  a  member  of  the 
Select  Committee  on  Town  Holdings  and  had  helped  draw  up  the  Draft 
Report  from  which  we  quoted  above. 


202  THE  TAXATION  OF  LAND  VALUE 

1906,^  when  Mr.  Sutherland's  "Land  Values  Taxation 
(Scotland)  Bill"  was  introduced  before  a  newly  elected 
House,  a  second  reading  was  voted  by  a  majority,  it  is  note- 
worthy, of  258,  and  on  April  24,  it  was  committed  to  the 
Select  Committee  for  consideration.^  As  the  findings  of 
this  committee  were  often  quoted  during  the  debate  on 
the  Finance  Act  of  1909-10,  and  throw  light  on  the  final 
enactment  of  this  measure,  an  analysis  of  the  Committee's 
report  is  necessary.  In  the  Draft  Special  Report  submitted 
to  the  Committee  the  disadvantages  of  the  existing  order 
were  set  forth.  It  was  pointed  out  that  under  the  system 
of  taxation  whereby  land  and  improvements  were  treated 
as  a  unit  and  that  unit  was  assessed  on  the  basis  of  its  an- 
nual value,  land  was  kept  out  of  use  and  undeveloped,  so 
that  the  supply  of  land  was  restricted  and  its  acquisition 
rendered  more  difficult  and  more  costly.  Furthermore, 
the  system  tended  to  penalize  the  builder  and  to  prevent 
the  owner  from  making  necessary  improvements.' 

Three  important  problems  which  occupied  the  atten- 
tion of  the  committee  were:  (1)  the  practicability  of  sep- 
arate valuation  of  land  and  improvements;  (2)  the  cost 

*  In  the  same  year  two  more  bills  were  presented  as  follows:  "  Land 
Values  Assessment  (Scotland)  Bill,"  by  Trevelyan,  and  "Land  Valuation 
(Scotland)  Act  1854  Amendment  Bill,"  by  McCrae.  See  Pari.  Debates 
(1906),  vols.  CLii  and  cliv. 

*  The  thoroughness  with  which  this  committee  investigated  the  subject 
of  land- value  taxation  deserves  mention.  Data  were  gathered  from  many 
foreign  coimtries,  while  expert,  practical  men  and  economists  were  sum- 
moned to  give  evidence. 

*  The  objections  were  summarized  as  follows:  — 

1.  Rating  on  hypothetical  capital  value  would  create  inequalities. 

2.  Separate  taxation  of  site  value  is  inequitable  and  impracticable. 

3.  Rating  on  land  value  would  tend  inevitably  to  a  curtailment  or  sup- 
pression of  gardens,  and  all  other  open  spaces  in  private  ownership. 

4.  The  scheme  interfered  with  private  contract. 

5.  It  would  be  a  harsh  and  confiscatory  proceeding  against  the  public 
and  private  trusts  and  private  investors  who  had  acquired  the  feu  duties 
simply  as  a  form  of  investment. 

6.  Public  credit  and  financial  secvuity  would  be  disturbed.  Papers, 
etc.  (Cd.  4845),  1909,  p.  53. 


THE  ENGLISH  LAND-VALUE  DUTIES         203 

of  such  valuation;  (3)  the  treatment  of  existing  contracts. 
As  to  the  question  of  valuation  the  evidence  was  conflict- 
ing. Expert  valuers  differed  as  to  the  practicability  of 
separate  valuations  for  site  and  building.  The  reports  of 
the  previous  committees  that  had  investigated  the  ques- 
tion were  quoted  and  discussed.^  According  to  Messrs. 
Moulton  and  Harper,^  who  had  testified  in  1900,  no  diffi- 
culty in  separate  valuation  exists  and  valuers  actually 
resort  to  that  method  in  their  work.'  According  to  others 
the  difficulty  of  separate  valuation  was  insuperable.  Like- 
wise there  was  a  difference  of  opinion  as  to  the  probable 
cost  of  such  valuation.  Mr.  Harper's  estimate  was  the 
lowest.*  An  expert  valuation  of  London  County,  accord- 
ing to  him,  would  probably  cost  £40,000;  according  to 
others,  such  a  valuation  could  not  be  made  for  less  than 
a  million  pounds.  In  going  over  this  evidence  of  hypo- 
thetical estimates,  it  is  significant  to  note,  the  Select  Com- 
mittee of  1906  appears  to  have  given  little  weight  to  the 
testimony  of  officials  in  other  countries,  for  example,  of 
Mr.  Purdy,  the  Commissioner  of  Taxation  in  New  York 
City,  and  to  have  neglected  the  experience  of  the  Austra- 
lasian and  Canadian  colonies,  where  the  practicability  of 
separate  valuation  is  no  longer  in  question.^ 

Aside  from  the  subject  of  valuation,  we  must  point 
out  another  serious  objection  of  the  Committee  to  the 
taxation  on  land  value,  namely,  the  interference  with 
existing  contracts.  The  system  of  leasehold  in  England, 
as  is  well  known,  makes  this  question  of  contracts  a  mat- 
ter of  vital  importance.  Not  only  are  sites  leased  under 
the  freehold  rent  charge,  the  999-year  leasehold,  and  the 

*  Papers  Bearing  on  Land  Taxes  (CM.  4750),  1909,  pp.  258  jf. 

*  Mr.  Harper  is  now  employed  by  the  Valuation  Department  as 
expert  valuer  in  the  great  task  of  valuing  all  the  land  in  the  United 
Kingdom. 

»  Cf.  Cd.  638  (1901),  p.  41.  *  Cd.  638,  p.  42. 

*  See  Papers  Bearing  on  Land  Taxes,  etc.  (Cd.  4750),  1909,  and  others 
on  The  Taxation  of  Land. 


204     THE  TAXATION  OF  LAND  VALUE 

99-year  systems,  but  subletting  further  complicates  the 
situation.  Thus  it  happens  that  besides  the  freehold  pur- 
chaser and  main  lessor,  the  lessee,  sublessee,  and  occupier 
may  have  interests  in  one  piece  of  property.  Obviously, 
were  the  new  system  of  taxation  adopted,  the  tax  would 
fall  on  the  lessee  or  occupier,  because  the  latter  had  con- 
tracted to  assume  the  burden  of  all  taxes.  Therefore  if 
the  purpose  of  the  new  system  was  to  be  carried  out,  and 
the  tax  made  to  fall  on  the  owner  of  the  fee  simple  or  les- 
sor, the  contract  which  made  the  tenant  liable  for  all 
charges  and  taxes  would  be  violated  and  the  rights  of 
the  landlord  infringed  upon.  On  the  one  hand,  it  is  argued 
that  such  a  tax  would  inflict  a  hardship  upon  the  owner 
who  probably,  at  the  time  when  the  contract  was  made, 
consented  to  a  smaller  rent  because  he  was  relieved  from 
the  tax  burden.  Moreover,  since  the  lessee,  until  the  ex- 
piration of  the  lease,  remained  the  recipient  of  any  in- 
creases in  the  income  from  the  land,  the  exemption  from 
the  tax  would  be  a  bounty,  or  an  additional  profit.  On 
the  other  hand,  it  is  pointed  out  that  the  ground-owner, 
upon  the  expiration  of  the  lease,  not  only  receives  back 
his  property,  but  all  the  improvements  made  by  the  lessee; 
that,  also,  whenever  a  renewal  of  the  lease  occurs,  the 
landowner  exacts  a  higher  rental  due  to  a  rise  in  the  value 
of  the  land,  often,  too,  as  a  result  of  the  improvements 
made  by  the  tenant.  It  is  clear,  therefore,  aside  from  any 
prejudice  in  the  matter,^  why  the  difficulty  in  rendering 

'  The  position  of  the  Committee,  forecasting  the  vehement  opposition 
that  had  to  be  overcome  before  the  enactment  of  the  Finance  Act  of 
1909-10,  is  shown  in  the  following  summary  of  the  evidence:  "Your 
Committee  cannot  but  take  cognizance  of  the  fact  that  the  principal  evi- 
dence in  support  of  the  scheme  was  that  of  men  of  very  extreme  views, 
and  of  predatory,  if  not  altogether  confiscatory,  opinions  in  regard  to 
rights  of  property  in  land.  In  the  view  of  such  witnesses  this  new  rate 
is  only  the  beginning  of  a  scheme  of  expropriation  without  compensation, 
whereby  the  whole  burden  of  local  and  imperial  charges  is  to  be  laid 
upon  the  owners  of  one  form  of  property,  if,  indeed,  any  rental  value  at 
all  is  to  be  left  to  them.    In  the  opinion  of  your  Committee,  a  scheme. 


THE  ENGLISH  LAND-VALUE  DUTIES         205 

justice  to  the  contractual  parties  under  such  complexities 
was  made  a  weighty  consideration  in  the  final  decision  of 
the  Select  Committee. 

§  4.  The  final  recommendations  of  this  Select  Com- 
mittee, as  well  as  the  subsequent  attempts  at  legislation, 
showed  that  the  enactment  of  rating  on  land  value  in  face 
of  the  opposition  of  the  House  of  Lords  would  be  impos- 
sible. In  reference  to  the  Land  Values  Taxation  (Scot- 
land) Bill  of  1906,  the  Select  Committee  recommended  ^ 
(1)  that  the  bill  be  dropped,  (2)  that  a  substitute  measure 
be  introduced  making  provision  for  a  valuation  of  the 
land  in  the  boroughs  and  counties  of  Scotland,  apart  from 
the  buildings  and  improvements,  and  (3)  that  no  assess- 
ment be  determined  upon  until  the  amount  of  that  valua- 
tion should  be  known  and  considered.  Then,  in  accordance 
with  these  recommendations  a  bill  "to  provide  for  the  as- 
certainment of  the  land  values  in  Scotland  "  was  presented 
in  the  House  by  the  Lord  Advocate,  Mr.  Shaw,  during 
the  session  of  1907.  It  will  be  noted  that  this  bill  was 
merely  for  statistical  purposes,  not  for  the  taxation  of  land 
value;  nevertheless,  the  Opposition  was  apprehensive  of 
the  consequences  of  the  proposed  land  valuation.  The 
bill  passed  the  House  of  Commons,  only  to  be  defeated  in 
the  House  of  Lords.  ^  In  the  following  year  another  bill 
bearing  the  title,  "Land  Values  (Scotland)  Bill  of  1908," « 
was  again  favorably  voted  upon  in  the  House  of  Commons, 
but  was  so  amended  by  the  Lords  that  the  government 
was  compelled  to  drop  the  bill.  This  action  of  the  Upper 
House,  of  course,  only  kindled  the  ire  of  the  pubhc,  who 

mainly  advocated  by  persons  holding  such  opinions,  must  be  regarded  with 
suspicion  by  all  who  condemn  their  ultimate  aims,  not  only  as  contrary 
to  public  policy,  but  as  inconsistent  with  public  faith."  Cd.  4845,  p.  52. 
From  a  report  submitted  by  Mr.  Remnant. 

1  House  of  Commons  Paper  379  (1906),  p.  xrv. 

*  See  Pari.  Debates  (1907),  vols.  cXiXxrv,  CLXXXi. 

'  Pari.  Debates  (1907),  vol.  CLXxxii,  pp.  43  ff.  As  before  this  bill  pro- 
vided for  the  assessment  in  a  separate  column  of  the  capital  value  of  all 
the  land  in  Scotland. 


206  THE  TAXATION  OF  LAND  VALUE 

interpreted  it  as  an  undue  interference  with  popular  gov- 
ernment.* 

That  this  determined  opposition  of  the  Lords  is  in  part 
responsible  for  the  imperial  taxation  of  land  value,  as  em- 
bodied in  the  Finance  Act  of  1909-10,  is  attested  by  num- 
erous utterances  of  the  leaders  in  power.  Thus  in  1909, 
when  Lloyd  George  was  upbraided  because  no  reference 
to  the  question  of  valuation  had  been  made  in  the  King's 
Speech,  he  repHed:  ^  "Well,  we  have  had  some  experience 
of  trying  to  carry  Valuation  Bills  through  Parliament. 
We  carried  a  Valuation  Bill  for  Scotland  in  the  House  of 
Commons  and  sent  it  to  'another  place'  but  it  came  to  an 
unfortunate  end.  We  are  bearing  that  in  mind.  We  are 
considering  whether  there  are  not  other  means  of  dealing 
with  that  great  question,  especially  as  it  has  got  mixed  up 
with  local  and  Imperial  finance.  .  .  ."  The  other  means  re- 
ferred to  were  undoubtedly  the  land-value  duties.  Incor- 
porated in  the  budget,  the  land-value  duties  would  have 
to  become  law.  Indeed,  the  Lords'  opposition  to  this  dras- 
tic reform  reached  a  dramatic  climax  in  that  year.    It 

*  In  a  speech  of  October,  1907,  Lloyd  George  said:  "The  Land  Values 
Bill,  which  did  no  more  than  throw  upon  the  local  authorities  the  single 
duty  of  valuing  the  land  apart  from  the  buildings  upon  its  surface  was 
incontinently  rejected,  and  I  say  this  rejection  was  a  piece  of  arrogance 
and  high-handedness  which  marks  the  extreme  pretensions  of  the  House 
of  Lords."  Quoted  in  the  House  of  Lords;  see  Pari.  Debates  (1908),  vol. 
cxcii,  p.  15. 

*  Ibid.  (1909),  vol.  i,  p.  936.  The  following  quotations  express  the 
same  thought:  "We  do  not  believe  that  Increment  Duty  is  at  all  a 
desirable  tax.  We  supported  it  when  the  Budget  of  1909-10  was  going 
through  on  certain  definite  grounds.  It  was  Uie  only  means  of  getting  a 
valuation  of  the  land.  Owing  to  the  action  of  the  House  of  Lords  in  refusing 
to  pass  in  tvx)  Sessions  in  succession  a  fair  valuation  bill  we  had  to  get  our 
valuation  of  the  land  of  the  country  via  the  Finance  Act  of  1909-10."  (From 
a  speech  by  Mr.  Wedgewood,  M.P.  Ibid.  (1913),  vol.  l,  p.  176.)  "Land 
reformers  believed  that  a  valuation  had  been  accomplished,  a  value 
apart  from  the  buildings  and  improvements  upon  land  by  which  they 
would  finally  be  enabled  to  secure  a  basis  for  rating  and  taxation  fairer 
and  more  just  than  the  basis  upon  which  our  rating  and  taxation  now  depend." 
Quoted  from  a  speech  by  the  Lord  Advocate,  A.  Ure.  Ibid.,  vol.  lvi,  p.  404. 
(Italics  mine.) 


THE  ENGLISH  LAND-VALUE  DUTIES         207 

meant  capitulation  to  the  measure  insuring  a  valuation  of 
the  land,  or  the  dissolution  of  the  House  of  Lords.  ^  In 
such  circumstances  the  Lords  gave  way,  and  thus  the 
Finance  Bill  of  1909-10,  providing  for  the  taxation  of  land 
value,  was  finally  enacted. 

§  5.  Having  traced  the  development  of  the  principle 
of  taxing  land  value  as  a  fiscal  poHcy,  evolved  from  the 
needs  of  the  local  governments,  we  have  yet  to  discover 
the  other  motives  which  made  the  budget  acceptable  in 
1909-10.  The  time  was  ripe  for  the  reform,  and  the  mo- 
tive existed  to  set  the  latent  forces  free.  The  budget  pro- 
posal, in  fact,  was  of  a  piece  with  the  general  poUcy  of 
social  legislation  of  the  administration.  The  party  in 
power  was  pledged  to  a  number  of  progressive  measures 
which  it  most  conscientiously  strove  to  carry  out.  Old- 
age  pensions,  insurance  against  invaUdity,  accident  and 
unemployment,  labor  exchanges,  home  rule  for  Ireland, 
were  on  the  board;  likewise,  the  taxation  of  land  value. 

Certainly  for  the  unusual  proposals  in  Part  I  of  the  Bud- 
get, the  fiscal  exigencies  —  that  is,  the  increased  expendi- 
ture needed  for  the  navy  and  old-age  pensions  —  are  not 
a  suflBcient  explanation.^  Indeed,  the  charge  of  the  Op- 
position that  Lloyd  George  favored  the  taxes  on  land 
value  because  he  was  "bitten  with  certain  theories"  can- 
not be  repudiated.  They  pointed  out  with  reason  that 
the  estimated  yield  of  the  tax  was  too  insignificant  to 
be  fiscally  justifiable.'  Furthermore,  when  we  find  some 
Cabinet  Ministers*   pledged  to  the  cause  of  the  new 

1  Cf.  Pari  Debates  (1908),  vol.  cxcn,  pp.  14,  15. 

*  Cf.  Lloyd  George's  Budget  Speech,  ibid.  (1909),  vol.  iv,  pp.  477,  500. 
If  it  had  been  a  measure  of  fiscal  exigency  the  tax  should  have  been  re- 
pealed in  1911-12,  when  there  was  a  siuplus  revenue. 

»  Cf.  ibid.,  vol.  IV,  p.  758. 

*  The  Lord  Advocate,  Mr.  Ure,  was  honorary  vice-president  of  the 
Scottish  League  for  the  Taxation  of  Land  Values;  the  Secretary  of  the 
Navy,  Mr.  Haldane,  is  said  to  have  been  a  member  of  the  Single  Tax 
League.  Cf.  ibid.,  vol.  vi,  pp.  79,  85.  Moreover,  Asquith,  Lloyd  George, 
and  Ure  had  always  supported  the  land^value  measures  that  bad  previ- 
ously been  presented  in  Parliament. 


208  THE  TAXATION  OF  LAND  VALUE 

taxes,  it  is  not  to  be  wondered  at  that  this  plank  in  the 
platform  was  inserted  in  the  Finance  Bill,  where  it  had 
a  better  likelihood  of  enactment.^  And  this  coup  d*  Uat 
succeeded. 

Again,  the  form  of  the  tax,  or  rather  taxes,  disproves 
their  alleged  fiscal  character.  This  becomes  evident  if  we 
compare  the  English  duties  with  the  local  land  taxes  in 
Australasia  or  Canada.  In  the  latter  countries,  taxation 
on  the  basis  of  capital  value  was  the  natural  outgrowth 
of  conditions;'^  and  land- value  taxation  was  there  adopted, 
because,  for  local  purposes,  it  was  found  most  expedient 
fiscally.  The  English  duties,  on  the  other  hand,  like  the 
increment  taxes  of  Germany  and  the  Australasian  pro- 
gressive land  taxes,  were  enacted  for  other  than  fiscal  rea- 
sons. Moreover,  of  all  the  forms  of  land-value  taxation  in 
operation,  the  English  system  bears  the  most  studied 
character.  It  is  a  combination  of  the  tax  on  selling  value 
and  the  tax  on  value  increment,  adapted  to  the  peculiar 
conditions  of  Great  Britain.  But  the  discriminatory  fea- 
ture of  the  English  land-value  duties  confirms  the  charge 
of  the  Opposition  that  not  fiscal  need,  but  antagonism  to 
the  unpopular  landowning  class  to  whom  the  increments 
from  the  appreciation  in  the  value  of  the  land  accrue,  is 
responsible  for  the  measure. 

And  because  the  tax  was  a  transplanted  system,  so  to 
speak,  and  the  deeply-rooted  principle  of  private  property 
rights  was  felt  to  be  infringed  upon,  the  controversy  in 
England  was  vehement  and  prolonged.  In  the  debates  in 
Parliament  the  bone  of  contention  appears  to  have  been 
the  proposed  substitution  of  capital  for  annual  value  assess- 
ment and  the  valuation  of  the  land  which  this  involved. 
From  the  vehemence  of  the  Opposition,  the  extent  to 
which  the  interests  of  the  landlords  were  felt  to  be  at 

*  It  was  well  understood  that  the  House  of  Lords  could  not  reject  the 
Finance  Bill  with  impunity;  this  later  events  demonstrated. 

•  See  supra,  chapter  n,  §  6;  also  infra,  chapter  vi,  §  1. 


THE  ENGLISH  LAND- VALUE  DUTIES         209 

stake,  and  the  extent  to  which  their  burden  of  taxation 
and  rating  had  hitherto  been  evaded,  now  became  appar- 
ent. The  apprehension  with  regard  to  the  valuation,  how- 
ever, was  chiefly  confined  to  the  landowners  in  England. 
In  Scotland,  where  annual  valuation  had  existed  since 
1854,  the  valuation  of  the  land  apart  from  the  buildings 
was  in  general  regarded  with  favor.  ^  In  England,  the 
unprecedented  character  of  the  reform  aroused  the  sever- 
est disapproval.  The  duties  were  regarded  by  the  Oppo- 
sition as  a  confiscatory  measure. '^  "This  Undeveloped 
Land  Duty,"  said  Mr.  Everett  in  the  House  of  Commons,' 
"is  a  very  remarkable  one;  it  is  the  greatest  innovation  of 
all  the  Land  Taxes  proposed,  and  it  excites  a  great  deal 
of  apprehension  in  the  minds  of  many.  It  is  quite  excep- 
tional and  unprecedented  in  its  character.  .  .  ."  Equally 
novel  appeared  the  duty  on  value  increment,  which  was 
modeled  after  the  German  "Zuwachssteuer,"  *  and  the 
reversion  duty,  which,  though  resembling  the  increment 
duty,  was  clearly  adapted  to  the  English  leasehold  sys- 
tem. As  for  the  mineral-rights  duty,  so  impractical  and 
impossible  did  the  valuation  of  undeveloped,  unopened 
mines  appear  that  the  original  proposal  to  tax  mineral 
land  was  abandoned,  as  we  shall  see,^  and  a  new  method 

*  "For  twenty  years  back  in  seven  of  the  counties  of  Scotland,  the  rent 
and  the  consequent  rate  had  been  fixed  upon  the  valuation  of  the  land 
apart  from  the  buildings  and  improvements  upon  the  land.  In  all  these 
counties  where  the  custom  was  for  the  tenant  to  erect  buildings  and  make 
improvements  there  was  no  rent  charged  upon  them,  and  there  was  a 
valuation  every  year  of  land  alone  apart  .  ,  .  with  regard  to  urban  dis- 
tricts ...  for  upwards  of  half  a  century  it  had  been  the  regular  practice 
in  Scotland  to  make  the  valuation  of  land  and  buildings  separately." 
From  a  speech  by  Mr.  Ure.  Cj.  Pari.  Debates  (1908),  vol.  clxxxiv,  pp. 
891-92. 

*  Cf.  ibid.  (1909),  vol.  iv,  pp.  811,  909;  vol.  vi,  p.  110, 

*  Ibid.,  vol.  XII,  p.  516. 

*  Lloyd  George,  prior  to  the  presentation  of  the  budget  in  the  House, 
had  himself  traveled  through  Germany  to  investigate  the  subject  at  first 
hand.    See  ibid.,  vol.  rv,  p.  1758. 

«  InfTa,  §  11. 


210  THE  TAXATION  OF  LAND  VALUE 

substituted.  Nevertheless,  in  spite  of  the  severe  contro- 
versy which  the  duties  aroused,  these  "fantastic  propos- 
als which  were  so  alarming  the  country"  ^  became  law. 

§  6.  Turning  to  the  analysis  of  the  land-value  duties, 
it  is  necessary  to  point  out  that  many  of  the  clauses  admit 
of  various  interpretations.  It  is,  indeed,  agreed  among 
legal  authorities  that  the  bill  was  badly  framed,^  and  it 
has  given  no  end  of  difficulty  to  the  courts  which  must 
interpret  its  meaning.  The  full  title  of  the  Finance  Act 
(the  "statute  with  a  barbarous  name,"  '  as  it  has  been 
called  by  a  "truculent  King's  Counsel")  reads  as  follows: 
"A  Bill  to  Grant  Certain  Duties  of  Customs  and  Inland 
Revenue  (including  excise),  to  alter  other  Duties  and  to 
amend  the  Law  relating  to  Customs  and  Inland  Revenue 
(including  excise)  and  to  make  other  financial  Provisions." 
Thus,  not  only  did  the  government  incorporate  a  social 
reform  measure  in  a  comprehensive  fiscal  proposal,  but 
it  consigned  the  first  part  *  of  the  Act  to  the  fiscally  unim- 
portant land-value  duties.  It  is  this  part  that  will  here  be 
examined. 

The  English  system  of  taxing  land  value  is  complex, 
embracing  not  one  tax  but  four  dififerent  ones;  namely, 
(1)  the  value-increment  duty,  (2)  the  reversion  duty,  (3) 
the  undeveloped-land  duty,  and  (4)  the  mineral-rights 
duty.  The  first  two  are  indirect  levies,  the  last  two  are 
annual,  direct  taxes.  In  the  following  sections  we  shall 
attempt  to  interpret  these  several  duties  in  the  light  of 
recent  court  decisions,  to  explain  the  system  of  valuation 

»  Pari  Debates  (1909),  vol.  iv,  p.  1779. 

*  Cf.  Napier,  "  The  Valuation  Scheme  of  the  Land  Clauses  of  the  Fi- 
nance Act "  (1910),  in  the  Law  Quarterly  Review  (1911),  vol.  xxvii,  pp. 
441  Jf .  Cf.  also  Cox-Sinclair  and  Hynes,  "  Some  Problems  in  Land  Val- 
ues," in  Law  Magazine  and  Review  (1912-13),  vol.  xxxviii,  pp.  336  jf. 

*  Law  Quarterly  Review  (1912)  vol.  xxvni,  pp.  320-21. 

*  Part  I  has  the  following  subdivisions:  (1)  Increment- Value  Duty,  (2) 
Reversion  Duty,  (3)  Undeveloped-Land  Duty,  (4)  Mineral-Rights 
Duty,  (5)  Valuation  for  Purposes  of  the  Duties,  (6)  Appeals  and  Sup- 
plemental Clauses. 


THE  ENGLISH  LAND-VALUE  DUTIES         211 

of  all  the  land  in  the  United  Kingdom  as  provided  for  in 
the  Act,  and  to  describe  the  administrative  features  of  the 
new  taxes. 

§  7.  The  value-increment  duty  ^  is  a  tax  of  twenty  per 
cent  of  the  increase  in  the  site  value  of  the  land,  calculated 
from  the  "original  site  value"  on  April  30, 1909.  The  occa- 
sions for  the  payment  of  the  duty  are  as  follows :  ^ 

(a)  Whenever  the  land  or  any  interest  in  the  land  shall 
be  sold. 

(6)  When  land  shall  be  leased  for  a  period  exceeding 
fourteen  years. 

(c)  In  case  of  the  transfer  of  land  on  death. 

(d)  On  April  5,  1914,  and  in  every  subsequent  fifteenth 
year,  on  land  held  by  bodies  corporate  or  unincorporate. 

The  next  important  consideration  is  how  to  ascertain 
the  value  increment.  The  Act  defines  value  increment  as 
"the  amount  (if  any)  by  which  the  site  value  of  the  land 
on  the  occasion  on  which  increment-value  duty  is  to  be 
collected  .  .  .  exceeds  the  original  site  value  of  the  land."  ' 
This  original  site  value  is  to  be  determined  by  making  a 
valuation  of  all  the  land,  and  the  value  is  to  be  estimated 
as  on  April  30,  1909. 

To  ascertain  the  site  value  the  Act  defines  four  values, 
the  total,  the  gross,  the  full  site,  and  the  assessable  site 
values.  This  classification,  it  is  agreed,*  unnecessarily 
complicates  the  system  of  valuation  and  assessment. 
Reduced  to  its  simplest  terms,  the  site  or  assessable  value 
may  be  defined  as  the  value  which  the  "fee  simple  of  the 
land,  if  sold  at  the  time  in  the  open  market  by  a  willing 
seller  in  its  then  condition,  free  from  incumbrances,  and 

*  It  is  significant  that  the  proposal  to  change  Section  I  to  read  "un- 
earned increment"  was  voted  down  in  Committee.  See  Pari.  Debates 
(1909),  vol.  VI,  pp.  1484-87. 

«  House  of  Commons  Bill  144  (1910),  §  1. 
»  Ibid.,  §  2. 

*  Cf.  Solicitors'  Journal,  vol.  lv,  p.  736;  also  Cox-Sinclair,  op.  cii., 
p.S4a 


812     THE  TAXATION  OF  LAND  VALUE 

from  any  burden,  charge,  or  restriction  ^  (other  than  rates 
or  taxes)  might  be  expected  to  realize,"  after  deducting:  — 

(a)  The  amount  of  any  buildings  and  of  any  other 
structures,  including  fixed  machinery,  all  growing  timber, 
fruit  trees,  fruit  bushes,  etc. 

(6)  The  total  value  of  the  expenditures  incurred  for  im- 
provements, such  as  drainage,  leveling,  advertisements, 
etc. 

(c)  The  value  added  to  the  land  by  dedication  of  neigh- 
borhood land  as  squares,  gardens,  roads,  open  spaces  for 
the  use  of  the  public. 

(d)  The  value  attributable  to  expenditure  on  the  re- 
demption of  any  land  tax,  fixed  charges,  enfranchisement 
of  land  previously  of  copyhold  tenure,  or  attributable  to 
"goodwill,"  etc.2 

Comparing  the  value-increment  duty  with  the  German 
system,  it  is  to  be  noted:  — 

First,  as  regards  the  occasions  of  levy,  while  the  Ger- 
man tax  is  collectible  only  on  the  occasion  of  a  sale  of  the 
land,  the  English  law  adds  the  transfer  by  lease,  death, 

*  Bill  144,  §  25.  "  The  amount  by  which  the  value  would  be  diminished  if 
the  land  were  sold  subject  to  any  fixed  charges  and  to  any  public  rights  of 
way  or  any  public  rights  of  user,  and  to  any  right  of  common  and  to  any 
easements  aflfecting  the  land,  and  to  any  covenant  or  agreement  restricting 
the  use  of  the  land  entered  into  or  made  before  the  thirtieth  day  of  April, 
1909,  and  to  any  covenant  or  agreement  restricting  the  use  of  the  land 
entered  into  or  made  on,  or  after  that  date." 

*  We  have  attempted  to  simplify  the  definitions  of  values  used  in  the 
Act,  which  have  been  called  a  "  verbal  juggle. "  The  Act  provides  for  the 
separate  valuation  of  the  total  and  assessable  site  values.  To  ascertain 
these,  a  roundabout  method  is  provided  for:  thus  the  assessable  site 
value  is  obtained  by  making  certain  deductions  from  the  total  value, 
which  is  itself  the  gross  value  less  burdens,  charges,  restrictions.  Accord- 
ing to  the  Act,  §  25  (4),  however,  the  assessable  value  of  land  means  the 
total  value  after  deducting:  "  (a)  the  same  amount  as  is  to  be  deducted 
for  purposes  of  arriving  at  full  site  value  from  gross  value,"  etc.  This 
necessitates  the  ascertainment  of  gross  value  and  full  site  value.  The 
result  of  this  method  of  valuation  has  been  sometimes  very  anomalous 
values,  for  example,  minus  values.  Cf.  Solicitors'  Journal,  vol.  lvi,  pp. 
478/.  Cf.  also  infra,  §  12. 


THE  ENGLISH  LAND-VALUE  DUTIES         213 

and  in  case  of  corporations,  a  periodic  occasion  of  fifteen 
years.  This  last  occasion  for  the  collection  of  value  incre- 
ment is  explainable  by  reason  of  the  fact  that  a  corporation 
has  legally  a  permanent  existence.  The  arbitrary  period 
of  fifteen  years  is  therefore  substituted  for  the  occasion  of 
the  passing  of  land  on  death.  While,  then,  the  German 
government  contents  itself  with  sharing  the  increment 
whenever  the  profit  actually  accrues  to  the  landowner, 
the  English  government  demands  a  share  of  the  increment 
on  all  occasions  of  transfer,  whether  the  increment  has 
actually  accrued  to  the  owner,  or  is  only  potentially  realiz- 
able. 

Secondly,  the  method  of  ascertaining  the  value  incre- 
ment is  different.  In  the  German  system  the  actual  selling 
prices  constitute  the  basis  of  computation;  in  the  English 
system,  a  hypothetical,  fictitious  value  is  the  basis. ^  It  is 
true  that  the  latter  is  in  closer  accordance  with  the  princi- 
ple of  the  tax,  that  only  the  increment  attributable  to 
influences  affecting  the  value  of  the  site  irrespective  of  the 
improvements  should  be  taxable.''  The  German  system, 
however,  even  though  lacking  in  accuracy  from  the  stand- 
point of  principle,  is  simpler  in  administration  and  more 
practicable. 

Thirdly,  the  English  tax,  which  takes  from  the  land- 
owner one-fifth  of  the  value  increment  accruing  since 
1909,  is  neither  retroactive,  nor  progressive,  as  is  the 
German  imperial  tax.  Only  the  future  increments  will  be 
made  subject  to  duty.  That  this  is  fiscally  less  expedient 
has  abeady  been  pointed  out  in  the  case  of  the  Cologne 
ordinance.'  First,  the  revenue  from  the  value-increment 
duty  must  be  trifling  for  a  number  of  years  to  come;  sec- 

^  It  is  held  that  the  valuation  provisions  are  applicable  to  the  ascer- 
tainment of  the  occasional  as  well  as  the  original  site  values.  CJ.  Solid- 
tors'  Journal,  vol.  lv,  pp.  717,  710. 

'  We  have,  indeed,  seen  that  in  some  cases  the  Grennan  "  ZuwaduH 
steuer"  is  a  realty,  not  a  land-value  tax.  CJ.  supra,  pp.  150-51. 

*  See  supra,  chapter  iv,  §  18. 


214  THE  TAXATION  OF  LAND  VALUE 

ondly,  the  expense  of  the  valuation  for  the  original  site 
value  has  already  been  enormous.^ 

Fourthly,  as  under  some  of  the  German  local  measures, 
a  remission  of  ten  per  cent  of  the  original  site  value  is 
allowed  under  the  English  system,  on  the  first  occasion  for 
the  collection  of  increment  duty;  and  a  remission  of  an 
equal  amount  of  the  site  value  on  the  last  preceding  occa- 
sion for  the  collection,  on  any  subsequent  occasion  for  the 
collection  of  duty;  with  this  proviso,  "no  remission  shall 
be  given  on  any  occasion  which  will  make  the  amount  of 
the  increment  value  on  which  duty  has  been  remitted  dur- 
ing the  preceding  five  years  exceed  twenty-five  per  cent  of 
the  site  value  of  the  land  on  the  last  occasion  for  the  collec- 
tion of  increment-value  duty  prior  to  the  commencement 
of  that  period  or  of  the  original  site  value  if  there  has  been 
no  such  occasion."  *  Thus,  in  order  to  be  taxable  the 
value  increment  must  constitute  at  least  ten  per  cent  of  the 
previous  site  value;  and  then  it  is  only  the  excess  over  the 
ten  per  cent  that  is  taxable. ' 

Fifthly,  like  its  German  prototype,  the  value-increment 
duty  is  a  stamp  duty  and  is  deemed  paid  when  the  govern- 

*  Of  course,  as  we  have  shown,  the  valuation  of  all  the  land  in  the 
United  Kingdom  was  to  serve  another  purpose  than  the  administration 
of  the  value-increment  duty.  See  supra,  p.  206  and  footnotes. 

'  An  illustration  will  make  this  complicated  wording  clear.  A  piece 
of  land  whose  original  site  value,  i.e.,  on  April  80,  1909,  let  us  suppose, 
was  £600  is  sold  in  1911  for  £660.  Since  the  value  increment  does  not 
exceed  ten  per  cent  of  the  original  site  value,  no  tax  is  payable.  Suppose, 
now,  it  is  sold  again  in  1914  for  £726.  Again,  because  the  excess  over  the 
previous  selling  price  is  only  £66  or  just  ten  per  cent,  no  tax  will  be  im- 
posed. Now,  should  this  piece  of  land  be  again  sold  in  1916  for  £800,  the 
value-increment  duty  will  not  be  charged  on  the  £74,  the  difference  in 
value  since  the  last  occasion  in  1914;  but  on  the  difference  between  the 
original  site  value,  £600,  and  the  £800,  for  the  amount  of  the  value  in- 
crement on  which  duty  had  been  remitted  during  the  preceding  five 
years  exceeds  twenty-five  per  cent  of  the  original  site  value.  However, 
as  a  remission  of  twenty-five  per  cent  is  allowed  in  this  case,  the  taxable 
value  increment  will  be  only  £50.  Twenty  per  cent  will  give  a  tax  of 
£10.    Cf.  Napier,  The  New  Land  Taxes,  pp.  13/. 

»  C/,  Bill  144,  (1910),  §  3. 


THE  ENGLISH  LAND-VALUE  DUTIES         215 

ment  stamp  has  been  attached  to  the  deed  at  the  time  of 
transfer.^ 

Sixthly,  following  the  German  precedent  again,  the  Eng- 
lish Act  provides  that,  if  it  can  be  proved  to  the  Commis- 
sioners that  the  site  value  of  a  piece  of  land  at  any  time 
within  twenty  years  prior  to  April  30,  1909,  exceeded  the 
original  site  value  as  ascertained  under  the  Act,  that  higher 
value  shall  be  substituted  for  the  original  site  value.  It  will 
readily  be  seen  that  it  is  in  the  interest  of  the  person  subject 
to  the  value-increment  duty  to  have  the  original  site  value 
as  high  as  possible,  unless  this  person  be  likewise  subject 
to  the  undeveloped  land  duty.^ 

Seventhly,  difficult  as  it  is  to  determine  the  incidence 
of  the  tax,  the  English  law  nevertheless  stipulates,  as  do 
the  German  laws,  that  the  tax  shall  be  paid  by  the  trans- 
feror or  lessor,  and  in  case  of  a  sale  by  the  seller.'  It  would 
seem  therefore  that  the  conflicting  interests  of  seller  and 
purchaser  with  regard  to  the  value  of  the  land  will  tend  to 
the  registration  of  the  actual  value  of  the  land  and  will 
tend  to  prevent  fraud.  For  it  is  to  the  advantage  of  the 
seller  to  have  the  original  site  value  estimated  as  high  as 
possible,  and  the  selling  price  as  low  as  possible,  so  that 
the  difference  may  be  less.  On  the  other  hand,  it  is  to  the 
interest  of  the  purchaser  to  have  the  selling  value  as- 
sessed as  high  as  possible,  so  that  the  difference  between 
that  value  and  the  value  at  a  future  transfer  may  be  less. 

Eighthly,  a  notable  departure  from  the  German  practice 
is  the  exemption  of  agricultural  and  small  holdings  from 
value-increment  duty. 

The  following  are  exempt:  — 

(1)  Agricultural  land,  or  rather  land  whose  market  value 
does  not  exceed  the  average  value  of  land  used  for  agricul- 
tural purposes.^  For  example,  if  a  parcel  of  land  used  for 

1  Cf.  BiU  144  (1910),  §  3.      *  Ihid.,  §  2.  See  infra,  §  9.        »  lUd.,  §  4. 
*  lUd.,  §  7.   The  chief  reason  for  exempting  agricultural  land  is  that 
the  value  of  rural  land  in  England  has  on  the  whole  depreciated. 


216  THE  TAXATION  OF  LAND  VALUE 

agricultural  purposes  could  bring  a  higher  value  if  sold  for 
building  purposes,  the  exemption  would  not  apply. 

(2)  Small  properties  occupied  by  the  owner,  provided:^ 

(a)  the  house  is  situated  in  the  County  of  London 
and  has  an  annual  value  not  exceeding  £40 
(as  determined  for  Income  Tax,  Schedule  A); 
or, 

(6)  the  house  is  situated  in  a  borough  or  urban  dis- 
trict of  50,000  population  or  upward  and  has  an 
annual  value  not  exceeding  £26;  or, 

(c)  the  house  is  situated  elsewhere  and  has  an  an- 
nual value  not  exceeding  £16;  or, 

(d)  the  land  is  used  for  agriculture  and  does  not 
exceed  50  acres,  ^  whose  average  total  value  does 
not  exceed  £25  per  acre. 

Other  exemptions  are:  — 

(3)  Any  land  owned  by  a  corporate  or  unincorporate 
body  which  receives  no  dividends  or  profits  out  of  the 
revenue,  but  uses  the  land  for  games  and  other  recreational 
purposes." 

(4)  Land  held  by  any  department  of  government,  or  by 
or  for  the  king.  This  does  not  obviate  the  valuation  of 
Crown  lands,  for,  to  facilitate  future  transfers,  increment 
duty  owing  on  such  land  is  assessed  and  deemed  to  have 
been  paid.* 

The  further  discussion  of  the  value-increment  duty  must 
be  reserved  for  later  sections  under  the  administration  and 
working  of  the  tax.  We  shall  find  that  peculiar  diflSculties 
in  administration  have  arisen,  because  the  law  was  framed 

1  Cf.  BUI  144  (1910),  §  8. 

*  The  owner  must  be  resident  on  the  land  and  the  total  amount  owned 
by  him  must  not  exceed  fifty  acres.  The  exemption  is  not  applicable  to 
any  land  together  with  a  dwelling  house  when  the  annual  value  of  the 
house  exceeds  £30.  See  ibid.,  §  8. 

»  Ibid.,  §  9. 

*  Ibid.,  §  10. 


THE  ENGUSH  LAND-VALUE  DUTIES         217 

in  accordance  with  the  theory  of  the  tax,  not  in  accordance 
with  experience.^ 

§  8  The  adaptation  of  the  principle  of  the  tax  on  value 
increment  to  leasehold  property  is  characteristically  Eng- 
lish, for  it  is  in  England  that  the  leasehold  system  is  very 
widely  developed.  The  Act  provides  that,  on  the  expira- 
tion of  a  lease  of  land,  reversion  duty  shall  be  charged  at 
the  rate  of  one  pound  for  every  complete  ten  pounds  of 
the  value  of  the  benefit  accruing  to  the  lessor,  by  reason  of 
the  determination  of  the  lease.*  At  first  sight  the  rever- 
sion duty  would  seem  to  be  a  value-increment  duty  collec- 
tible on  another  occasion  than  those  mentioned,  that  is,  on 
the  expiration  of  a  lease.  But  in  principle  and  method  of 
assessment  the  two  are  distinct  taxes  and  should  be  differ- 
entiated from  each  other.  To  illustrate:  a  landowner, 
without  making  any  outlays,  leases  his  land  to  a  tenant  for 
a  term  of  years,  frequently  on  a  ninety-nine  year  lease. 
The  tenant  improves  the  property  by  erecting  a  building 
and  otherwise,  assumes  all  risks,  pays  all  taxes,  and  at  the 
expiration  of  the  lease,  the  property,  including  improve- 
ments, reverts  to  the  landowner.  Such  being  the  usual 
case,  it  is  argued,  as  in  the  case  of  the  value-increment 
duty,  that  to  appropriate  ten  per  cent  of  this  "unearned" 
value  in  behalf  of  the  government  creates  no  hardship 
upon  the  owner  of  the  fee  simple.' 

This  reasoning  has  been  attacked  on  several  grounds. 
Unlike  the  duty  on  value  increment,  the  reversion  duty 
is  not  only  retroactive,  but  is  an  infringement  of  the  right 
of  free  contract.  To  illustrate  this  contention,  assume  that 
a  person  owns  a  parcel  of  land  which  his  father  had  leased 
to  a  builder  for  a  period  of  eighty  years  for  a  ground  rent 
of  £20  annually,  plus  a  sum  of  £300,  as  a  premium  in  con- 
sideration of  the  lease.  At  the  expiration  of  the  lease  in 
1912,  the  landowner  recovers  the  house  and  lot.  Assume 

1  See  infra,  §§  H,  13.  *  Bill  144  (1910),  §  10. 

»  Pari.  Debates  (1909),  vol.  xn,  pp.  369/.;  vol.  iv,  p.  640. 


218  THE  TAXATION  OF  LAND  VALUE 

further  that  the  total  value  of  the  land,  buildings,  fixtures, 
etc.,  at  the  termination  of  the  lease  was  £2000.  Deducting 
from  this  amount  the  value  of  the  consideration  paid  at 
the  time  of  the  original  grant  of  the  lease,  namely  £300, 
plus  the  capitalized  rental  at  twenty-five  years  purchase, 
£500,  the  lessor  profits  by  a  value  increment  of  £1200. 
Reversion  duty  on  this  sum  at  ten  per  cent  equals  £120. 
Suppose,  now,  the  opponents  of  the  tax  argue,  that  the 
£20  rental  was  not  a  rack  rent;  suppose  that  the  rental 
charged  was  somewhat  less  by  virtue  of  the  expenditure 
incurred  by  the  lessee,  the  landlord  counting  on  the  in- 
creased value  because  of  the  improvements  and  the  ex- 
pected reversion;  is  it  right  to  disappoint  his  expectations 
by  levying  this  retroactive  tax?  Suppose,  too,  that  the 
rental  was  less  because  of  a  certain  stipulation  in  the  con- 
tract as  to  the  amount  of  expenditure  the  lessee  was  to 
incur;  is  it  not  an  interference  with  the  right  of  contract, 
to  levy  this  tax  on  a  false  assumption  that  the  rental 
charged  always  represents  a  rack  rent?  ^ 

To  meet  such  arguments  and  to  avoid  any  possible  hard- 
ships, the  government  has  granted  concessions  to  the  Oppo- 
sition, which  invahdate  the  objections  to  a  great  extent. 
First,  it  is  provided,^  that  in  computing  the  value  of  the 
benefit  accruing  to  the  lessor,  any  value  attributable  to 
any  works  executed  or  outlays  incurred  by  the  lessor, 
as  well  as  any  compensation  payable  by  him  to  the  lessee 
on  the  termination  of  the  lease  shall  be  deducted  from  the 
total  value.  Secondly,  the  value  of  the  land  at  the  time 
of  the  original  grant  of  the  lease  shall  be  ascertained  on  the 
basis  of  the  rent  paid  and  the  payments  made  in  consider- 
ation of  the  lease;  and  when  a  nominal  rent  has  been 
charged  the  tenant,  the  value  of  "any  covenant  or  under- 
taking to  erect  buildings  or  to  expend  any  sums  upon  the 
property"  shall  be  taken  into  consideration  in  calculating 

»  Cf.  Pari.  Debates  (1909),  vol.  vi,  pp.  79,  80;  vol.  xn,  pp.  371/. 
»  Bill  144  (1910),  §  13  (2). 


THE  ENGLISH  LAND-VALUE  DUTIES         219 

the  value  of  the  land  at  the  time  of  the  original  grant  of  the 
lease.*  In  regard  to  lessors  who  are  themselves  entitled 
only  to  a  leasehold  interest  in  the  land,  the  value  of  the 
benefit  accruing  on  the  termination  of  a  lease  shall  be  re- 
duced in  proportion  to  the  amount  by  which  their  interest 
is  less  than  the  value  of  the  fee  simple. 

Again,  in  view  of  the  Uberal  exemptions  from  reversion 
duty,  the  objection  to  the  retroactive  feature  of  the  tax 
loses  weight.  These  exemptions,  however  they  may  limit  the 
fiscal  efficacy  of  the  tax,  are  in  accordance  with  the  govern- 
ment's general  policy  as  regards  leaseholds.  Exempt  are:  ^ 

(a)  Any  reversion  in  case  of  a  lease  made  prior  to  April 
SO,  1909,  which  determines  within  forty  years  of  the  date 
of  purchase. 

(b)  Any  reversion  of  land  which  on  the  expiration  of  the 
lease  is  agricultural  land. 

(c)  Any  reversion  in  case  of  a  lease,  the  original  term  of 
which  did  not  exceed  twenty-one  years. 

We  may  take  note  also  of  the  following  provision  of 
partial  exemption:  In  case  of  a  reversion  before  the  term 
of  the  lease  expires,  and  in  case  the  lessee  is  granted  a  new 
lease  for  a  term  extending  at  least  twenty-one  years  be- 
yond the  date  on  which  the  original  lease  would  have 
expired,  an  allowance  of  two  and  one-half  per  cent  of  the 
duty  shall  be  granted  for  every  year  of  the  original  term 
of  the  unexpired  lease  from  the  time  the  lease  is  determined. 
This  allowance  shall  be  treated  as  if  it  had  been  paid,  pro- 
vided that  the  exemption  shall  not  exceed  fifty  per  cent 
of  the  whole  duty  payable.' 

*  The  decision  in  the  Camden  case  makes  this  provision  practically 
superfluous  and  renders  evasion  of  part  of  the  tax  easy.  The  House  of 
Lords  confirmed  the  judgment  of  the  Court  of  Appeal  against  the  gov- 
ernment, holding  that  the  value  of  the  building,  £6000,  was  to  be  con- 
sidered in  the  rental.  The  government  held  that  the  £125  rental  agreed 
upon  at  the  time  of  the  grant  of  the  lease  in  1824  was  not  a  nominal  rent 
merely.   Cf.  Solicitors'  Journal,  vol.  LVin,  p.  717. 

«  Bill  144  (1910),  §  14. 

»  Ibid..  §  14  (3).  Repealed  in  1911.  Cf.  Revenue  Bill  (1911),  §  8. 


220  THE  TAXATION  OF  LAND  VALUE 

It  is  necessary  to  point  out  the  reasoning  upon  which 
these  exemptions  are  based.  First,  short  lease  contracts 
are  to  be  exempted,  because  the  lessor  in  such  cases  cannot 
demand  so  high  a  rental  as  for  a  long-term  lease,  in  view 
of  the  improvements  to  be  made  by  the  lessee  which  will 
ultimately  revert  to  the  lessor.  In  other  words,  in  granting 
a  short-term  lease  the  rental  will  be  less  in  consideration 
of  the  outlays  to  be  incurred  by  the  lessee.  On  the  other 
hand,  in  granting  a  long-term  lease,  as  for  a  period  of 
forty  years  or  over,  the  owner,  it  is  assumed,  has  in  mind 
a  permanent  income  and  does  not  anticipate  the  enhanced 
value  of  the  property  which  may  ultimately  revert  to  him. 
Such  an  enhanced  value  is  in  the  nature  of  a  "windfall," 
and  to  appropriate  a  share  of  it  will  not  disappoint  the 
expectations  of  the  ground-owner.  The  distinction  drawn 
between  short-  and  long-term  leases  is  for  the  purpose  of 
discouraging  the  latter  and  to  facilitate  the  frequent  re- 
newal of  leases.  That  short-term  leases,  under  which  the 
lessee  is  apt  to  get  more  favorable  treatment,  are  desirable 
seems  to  have  been  the  sentiment  of  both  political  parties.^ 

Further  exemptions  from  reversion  duty  are  the  follow- 
ing:— 

(d)  Mining  leases.^ 

(e)  Where  the  reversioner  is  a  rating  authority.' 
(/)  Where  reversion  is  held  for  charitable  purposes. 

(g)  Where  reversion  is  held  by  a  statutory  company  for 

*  In  his  budget  speech  Lloyd  George  argued  that  the  exemption  of 
short-term  leases  from  reversion  duty  would  have  the  desired  effect:  "I 
propose  to  make  a  special  abatement  of  duty  proportionate  to  the  unex- 
pired period  of  the  original  lease  which  is  surrendered  and  have  great 
hopes  that  this  allowance,  coupled  with  the  fact  that  the  value  of  the  re- 
version for  the  purpose  of  duty,  will  be  calculated  upon  the  difference 
between  the  consideration  for  the  old  and  the  consideration  for  the  new 
lease,  will  induce  owners  to  grant  renewals  more  readily  and  upon  more 
favorable  terms  than  at  present,  and  so  tend  to  remove  one  of  the  most 
mischievous  effects  of  the  leasehold  system."  Pari.  Debates  (1909),  vol.  iv, 
p.  541. 

*  Bill  144  (1910),  §  22  (1).  Under  certain  conditions.  Cf.  infra,  p.  283. 
»  Ibid.,  §  36. 


THE  ENGLISH  LAND-VALUE  DUTIES         221 

the  purposes  of  its  undertaking  and  cannot  be  appropri- 
ated except  for  those  purposes.^ 

As  in  the  case  of  the  vahie-increraent  duty,  so  with  re- 
gard to  reversion  duty,  the  ambiguous  wording  of  the 
clause  has  given  rise  to  difficulties  in  legal  construction  and 
has  been  held  up  to  criticism,  if  not  ridicule,  by  legal  au- 
thorities.'^ The  clause  in  question  reads:  "On  the  deter- 
mination of  any  lease  of  land  there  shall  be  charged  ...  on 
the  value  of  the  benefit  accruing  to  the  lessor  by  reason  of 
the  determination  of  the  lease,  a  duty,  called  reversion 
duty,  at  the  rate  of  one  pound  for  every  complete  ten 
pounds  of  that  value."  '  Now,  it  is  argued  that  a  lease  can 
expire,  not  alone  by  lapse  of  time,  but  by  merger  through  a 
release  or  surrender  of  lease,  etc.  Suppose  the  lessee  in  the 
illustration  given  above,  after  making  the  improvements, 
had  purchased  the  leasehold  of  the  ground-owner,  would 
not  a  benefit  have  accrued  to  the  latter  on  the  determina- 
tion of  the  lease.'*  And  in  accordance  with  the  wording  of 
the  clause,  should  he  not  be  liable  for  reversion  duty? 
Again,  it  has  been  argued  ingeniously,  that  the  words 
"benefit"  and  "by  reason  of  the  determination"  are  am- 
biguous, that  a  benefit  arising  from  a  merger  accrues  by  the 
sale,  not  by  reason  of  the  conveyance  which  reversion  im- 
plies; hence  the  determination  of  the  lease  does  not  give 
rise  to  the  benefit.*  A  further  objection  is  the  possibility 
of  evading  the  payment  of  reversion  duty  by  avoiding  a 

^  Bill  144  (1910),  §  S8.  A  statutory  company  is  a  quasi-public  com- 
pany incorporated  under  a  Sp>ecial  Act.  C/.  Report  of  Commissioners  of 
Inland  Revenue,  1911  (Cd.  5833),  p.  151. 

'  Solicitors'  Journal,  vol.  Lv,  pp.  104  Jf. 

»  Bill  144  (1910),  §  13. 

*  It  has  been  pointed  out,  however,  that  the  merger  involves  the  deter- 
mination of  the  lease,  and  gives  rise  to  a  benefit,  for  the  value  of  the  free- 
hold, when  the  lease  expires,  exceeds  the  value  of  the  lease  and  reversion. 
In  other  words  there  is  a  "dormant"  value  which  the  determination  of 
the  lease  confers  on  the  owner.  "During  the  existence  of  the  lease  neither 
lessee  nor  lessor  can  deal  with  the  property  to  the  same  advantage  as  if 
it  were  free  from  lease."  Cf.  Solicitors'  Journal,  vol.  LV,  p.  105. 


222  THE  TAXATION  OF  LAND  VALUE 

merger.  Thus,  by  assigning  the  lease  to  a  trustee  for  the 
lessee,  until  the  renewal  of  the  lease  is  effected,  the  estate 
would  not  revert  to  the  owner  at  all  and  no  duty  would 
be  collectible.^  The  objections,  however,  are  for  the  most 
part  legal  quibbles  and  do  not  affect  the  administration  of 
the  duty. 

It  is  necessary  to  point  out  that  when  the  lease  expires 
by  sale,  value-increment  duty,  as  well  as  reversion  duty, 
is  collectible.  But  to  provide  against  the  payment  of  double 
duty  it  is  stipulated  that,  when  value-increment  duty  has 
been  paid,  no  reversion  duty  shall  be  charged  on  the  same 
property  at  the  same  time,  and  vice  versa.^  Furthermore, 
whether  the  ground-owner  actually  realizes  a  sum  of  money 
on  the  determination  of  the  lease  is  immaterial;  the  im- 
portant thing  is  that  the  property  shall  have  a  higher  value 
than  at  the  time  of  the  grant.  The  possibility  of  evasion 
of  the  duty  has  been  much  discussed  and  has  led  to  the 
amendment  of  some  of  its  provisions. 

In  regard  to  the  rate  of  the  tax,  it  is  worthy  of  note  that 
the  reversion  duty  is  at  the  rate  of  ten  per  cent,  or  one-half 
the  rate  of  the  value-increment  duty.  When,  however,  it 
is  considered  that  reversion  duty  is  a  retroactive  tax  and 
that  no  minimum  exemption  is  allowed  as  in  the  case  of 
value-increment  duty,  the  discrepancy  is  after  all  slight. 

§9.  The  duties  thus  far  considered  are  both  indirect 
levies;  the  others,  comprising  the  land-value  duties,  the 
undeveloped  land  and  mineral-right  duties,  are  direct 
taxes.  The  undeveloped  land  duty  is  a  charge  of  one-half 
penny  in  the  pound  on  the  value  of  unimproved  land. 
It  is  an  annual  tax  on  capital  value.  What  constitutes 
undeveloped  land,  the  following  definition  will  make  clear: 
"For  the  purpose  of  this  Part  of  this  Act,  land  shall  be 

*  Cf.  Solicitors'  Journal,  vol.  LV,  pp.  105-06. 

'  "The  difficulty  of  determining,  say  on  death  in  19S0,  how  much 
value  increment  had  been  included  in  the  taxation  in  1920  of  benefits  ac- 
cruing by  reason  of  the  determination  of  a  lease,  is  a  little  appalling." 
Napier,  The  New  Land  Taxes,  p.  lii. 


THE  ENGLISH  LAND-VALUE  DUTIES         223 

deemed  to  be  undeveloped  land,  if  it  has  not  been  de- 
veloped by  the  erection  of  dwelling  houses  or  of  buildings 
for  the  purposes  of  any  business,  trade,  or  industry  other 
than  agriculture  (but  including  glass-houses  or  green 
houses),  or  is  not  otherwise  used  bona  fide  for  any  business, 
trade  or  industry  other  than  agriculture.  .  .  ."  ^ 

In  instituting  this  direct  tax  on  unimproved  land  the 
aim  was  to  correct  a  social  ill  pecuhar  to  most  urban 
communities,  rather  than  to  tap  a  new  source  of  revenue. 
The  minority  reports  of  the  different  select  committees 
that  had  investigated  the  subject  had  called  attention  to 
the  aggravation  of  congestion  in  cities  arising  from  the 
fact  that  land  was  being  kept  out  of  use  and  held  for  spec- 
ulative purposes.  This  was  the  grievance  to  which  the 
Chancellor  of  the  Exchequer  pointed  when  he  said:  * 
"There  are  millions  of  acres  in  this  country  which  are  more 
stripped  and  sterile  than  they  were,  and  providing  a  living 
for  fewer  people  than  they  did  even  a  thousand  years 
ago."  It  was  hoped  that  even  a  slight  tax  on  non-income- 
bearing  land  would  induce  utilization  of  the  land,  a  result 
much  to  be  desired. 

What  then  could  be  the  objection  to  such  a  small 
charge  on  land?  The  fundamental  objection  raised  against 
the  undeveloped  land  duty  was  one  of  principle.  This  was 
the  first  time  that  a  direct,  i.e.,  annual,  tax  on  capital 
value  was  imposed,  a  most  discriminatory  tax.  First, 
therefore,  the  establishment  of  a  precedent  was  regarded 
with  serious  apprehension.  Secondly,  the  taxation  of  non- 
income-bearing  land  seemed  contrary  to  the  established 
principles  of  taxation.  Receiving  no  income,  wherewith 
was  the  owner  to  pay  the  duty?  "It  is  a  tax  not  upon 
annual  value,  as  all  other  rates  and  taxes  to  which  we  are 
accustomed  are,  but  it  is  a  tax  upon  capital  value,  and 
it  differs  from  all  the  other  Land  Taxes  in  that  it  is  an 
annual  charge.    It  is  not  a  charge  once  and  for  all  as  the 

1  Bill  144  (1910),  §  16.  *  Pari.  Debates  (1909),  vol.  iv,  p.  490. 


ItU  THE  TAXATION,  OF  LAND  VALUE 

Increment  Taxes,  but  an  annual  charge  upon  capital  value. 
It  is  a  tax  laid  on  without  there  being  any  money  in  hand 
out  of  which  to  pay  it.  .  .  .  But  in  this  case  the  tax  is  to  be 
laid  on  annually  on  individuals  who  are  receiving  nothing 
and  have  not  the  wherewithal  to  find  money  unless  they 
sell  the  land  or  draw  it  from  some  other  source."  ^ 

Other  objections  to  the  duty  on  undeveloped  land  were 
raised.  Thus  the  question  was  discussed  in  Committee  as 
to  the  possibility  of  judging  of  the  ripeness  of  vacant  land 
for  building  purposes.  On  the  one  hand,  it  was  ques- 
tioned whether  land  was  kept  out  of  use  for  other  reasons 
than  that  its  improvement  was  at  the  time  unprofitable. 
A  tax  on  such  land  would  compel  the  owner  to  make  im- 

*  From  a  speech  by  Mr.  Everett,  M.P,,  Pari.  Debates  (1909),  vol.  xii, 
p.  516.  Whether  the  new  tax  actually  entails  hardships  cannot  be  deter- 
mined from  isolated  instances,  nevertheless  the  following  cases,  occurring 
after  a  three  years'  experience  with  the  undeveloped  land  duty,  cited 
by  the  Earl  of  Camperdown  in  the  House  of  Lords  should  be  noted:  "  The 
Undeveloped  Land  Duty  is,  I  think,  the  heaviest  and  the  most  unjust 
of  all  the  land  taxes  under  the  Budget  of  1909-10.  Undeveloped  land 
duty  is  imposed  on  the  difference  between  the  value  of  the  land  for  agri- 
cultural purposes  and  the  assessable  site  value  of  the  same  land.  ...  In 
saying  that  this  duty  amounts  to  50  per  cent  or  upwards  of  the  highest 
income  obtainable  at  the  present  time,  I  have  put  it  at  a  very  moderate 
figure,  because  in  a  great  many  cases  it  amounts  to  a  great  deal  more 
than  100  per  cent.  .  .  .  Here  is  one  case.  It  concerns  three  acres  of  land. 
The  present  income  is  £7  10s.,  the  capital  value  on  which  duty  is  assessed 
is  £2490,  and  the  amount  of  the  duty  is  £5  4s.  As  against  £7  10s.  income 
the  owner  has  to  pay  £5  4s.  duty,  and  it  is  calculated  that  in  fifteen  years 
that  land  may  be  developed.  That  is  not  the  only  hardship,  because  five 
years  hence  this  land  will  be  revalued.  It  may  not  have  been  developed, 
.  .  .  indeed,  the  valuer  does  not  expect  that  it  will  be  developed  for  fif- 
teen years  .  .  .  but  at  that  time  the  capital  value  may  be  considerably  in- 
creased, and  therefore  the  duty  payable  would  be  also  considerably  in- 
creased. The  owner  of  this  property  has  to  pay  £5  4s.  in  duty  out  of  an 
income  of  £7  10s.  until  such  time  as  the  land  is  developed,  and  when  it  is 
developed,  if  it  is  found  to  be  of  a  higher  value  than  it  is  assessed  at  — 
if  the  owner  receives  more  for  the  land  than  it  is  assessed  at  at  the  end 
of  those  fifteen  years  —  he  will  be  liable  to  Increment  Duty  on  the  differ- 
ence." Another  case  cited  by  the  Earl  was  of  a  duty  of  £20  levied  on  land 
used  for  rabbit  shooting  from  which  the  income  was  £5.  Pari.  Debates 
(Lords  1913),  vol.  xiv,  pp.  1743-44.  Cf.  also  (Commons)  vol.  lii,  pp. 
913,  919-20. 


THE  ENGLISH  LAND-VALUE  DUTIES         225 

provements  prematurely,  would  force  land  and  buildings 
into  the  market  before  there  was  a  demand  for  them. 
Moreover,  it  was  feared  that  such  a  duty  by  giving  the 
owner  an  incentive  to  build  would  have  the  effect  of  over- 
utilization  of  the  land;  the  familiar  argument,  that  gardens, 
squares,  and  other  open  spaces,  the  so-called  "lungs"  of 
the  city,  would  be  built  upon,  to  the  detriment  of  public 
health.  On  the  other  hand,  the  opponents  also  claimed  that 
the  purpose  of  the  duty  on  undeveloped  land  would  be 
frustrated,  because  so  far  as  the  rich  estate-holder  on  the 
periphery  of  growing  towns  was  concerned,  a  tax  of  one- 
fifth  of  one  per  cent  would  not  impose  a  special  burden  upon 
him  to  induce  him  to  develop  or  sell  the  land.^  Speculation 
would  go  on  and  land  remain  vacant  as  before. 

The  question  of  the  definition  of  undeveloped  land 
proved  perplexing.  To  guard  against  special  hardships, 
as  well  as  to  prevent  evasions  the  following  provisions  were 
inserted:  ^ 

(a)  Land  which  had  once  been  improved  but  has  become 
derelict  shall  be  exempt  for  a  period  of  one  year  after  it  has 
ceased  to  be  used;  after  that  such  land  shall  be  subject  to 
the  duty  as  undeveloped  land. 

(b)  When  the  owner  of  unused  land  proves  that  he  or  his 
predecessors  had  incurred  expenditures  on  roads,  sewers, 
etc.,  with  the  purpose  of  developing  the  land,  such  land 
shall  be  regarded  developed  to  the  extent  of  one  acre  for 
every  complete  £100  of  that  expenditure,  provided,  that 
not  more  than  ten  years  have  elapsed  since  the  outlay  was 
made. 

(c)  For  the  purposes  of  this  duty,  undeveloped  land  shall 
not  include  minerals,  nor  mineral  land. 

(d)  When  value-increment  duty  has  been  paid  on  unde- 
veloped land,  the  site  value  of  this  land,  for  purposes  of 
computing  the  amount  of  undeveloped  land  duty,  shall  be 

*  Pari.  Debates  (1909),  vol.  xii,  p.  675  et  passim. 
«  Cf.  Bill  144  (1910),  §  16. 


226  THE  TAXATION  OF  LAND  VALUE 

reduced  by  a  sum  five  times  the  amount  paid  as  value-in- 
crement duty.^ 

Furthermore,  to  guard  against  the  evil  of  overutilization 
of  land  as  well  as  to  encourage  gardening  and  open  spaces 
in  the  interest  of  health  and  recreation,  the  following  ex- 
emptions from  duty  were  stipulated:  ^ 

(a)  Land,  the  site  value  of  which  does  not  exceed  £50 
per  acre. 

(b)  Agricultural  land,  except  when  the  site  value  exceeds 
£50  per  acre;  in  the  latter  case  undeveloped  land  duty  shall 
be  charged  only  on  the  amount  by  which  the  site  value  ex- 
ceeds the  average  value  of  purely  agricultural  land. 

(c)  Parks,  gardens,  and  open  spaces  used  by  the  public; 
also  land  held  vacant  for  games  and  recreation  in  the  inter- 
est of  the  public. 

(d)  Land  not  exceeding  an  acre  in  extent  occupied  with  a 
dwelling-house;  or  any  gardens  or  pleasure  grounds  which 
together  with  the  dwelling-house  do  not  exceed  twenty 
times  the  annual  value  of  the  gardens;  but  such  land  shall 
be  exempt  to  the  extent  of  five  acres  only. 

(e)  Agricultural  land  held  under  a  tenancy  originally 
created  by  a  lease,  or  agreement  made,  or  entered  into  be- 
fore April  30,  1909. 

(/)  Small  holdings  in  case  of  agricultural  land  occupied 
or  cultivated  by  the  owner,  where  the  total  value  of  the 
land  with  any  other  land  belonging  to  the  same  owner  does 
not  exceed  £500.^ 

In  order  to  prevent  the  evasion  of  duty  under  exemption 
(c)  above,  which  provides  for  the  exemption  of  sites  used 
for  games  or  other  recreation  grounds  used  under  some 
agreement  with  the  owner,  the  Act  stipulates  that  such 
exempted  land,  "shall  not  be  built  upon  unless  the  Local 
Government  Board  give  their  consent,  on  being  satisfied 
that  it  is  desirable  in  the  interest  of  the  public  that  the  re- 

^  This  provision  is  to  prevent  double  taxation. 

»  BiU  144  (1910),  §  17.  »  Ibid.,  §  18. 


THE  ENGLISH  LANI>-VALUE  DUTIES        227 

striction  on  building  should  be  removed."  Under  such  a 
provision,  obviously,  only  a  bona  fide  purpose  will  tempt  the 
owner  to  seek  exemption. 

As  we  shall  see  later,  ^  for  the  purpose  of  levying  this  duty 
a  quinquennial  valuation  is  provided  for  to  ascertain  the 
site  value  of  undeveloped  land.  Therefore,  irrespective  of 
any  changes  that  may  occur  in  the  value  of  the  land,  the 
assessed  site  value  remains  unchanged  during  the  five  year 
period  between  valuations.  ^ 

§  10.  Vehement  as  was  the  opposition  to  the  enact- 
ment of  the  undeveloped  land  duty,  the  controversy  waged 
fiercest  about  the  mineral-rights  duty.  For  here,  not  alone 
the  landowners  but  the  mining  industry  were  deeply  con- 
cerned. Indeed,  of  the  four  duties  proposed,  the  one  on 
mineral  rights  had  to  meet  the  severest  criticism,  especially 
in  the  early  stage  of  the  debate.  Convinced  of  the  diflScul- 
ties  of  valuation  and  the  uncertainty  of  both  the  incidence 
and  yield  of  the  tax  as  first  proposed,  the  Chancellor  of  the 
Exchequer  was  persuaded  to  revise  the  clauses  with  regard 
to  taxing  mineral  land.^  As  originally  drafted  this  tax  was 
a  charge  of  two-tenths  of  one  per  cent  on  the  capital  value 
of  the  unworked  mineral  land  and  was  in  every  respect 
correlated  to  the  duty  on  undeveloped  land,  its  supporters 
claiming  that  the  duty  would  have  the  effect  of  opening  up 
the  mines  and  increasing  industry.  But  the  proposal  to 
tax  unworked  minerals  aroused  a  storm  of  antagonism. 
How  was  the  value  of  minerals  unworked  and  beneath  the 
surface  to  be  ascertained? 

The  duty  which  was  finally  adopted  falls  on  the  royalty 

which  the  lessor  enjoys  "without  contributing  anything 

to  the  rates  of  the  district  or  in  any  way  risking  his 

money."  *    It  is  a  charge  of  one  shilling  for  every  twenty 

shillings  of  the  rental  value  of  all  rights  to  work  minerals 

1  Infra,  §  12.  *  Cf.  Pari.  Debates  (1918),  vol.  LVi,  p.  350. 

«  Ibid.  (1909),  vol.  ix,  pp.  662  jf. 

*  Ibid.  (1909).  vol.  xii,  p.  587.  The  sentiment  against  the  mine- 
owners  at  the  time  of  the  budget  agitation  ran  high.  At  a  conference 


228  THE  TAXATION  OF  LAND  VALUE 

and  of  all  mineral  way-leaves.^    A  mineral  way-leave  is 

defined  as  "any  way-leave,  air-leave,  water-leave,  or  right 

to  use  a  shaft  granted  to  or  enjoyed  by  a  working  lessee, 

whether  above  or  under  ground,  for  the  purpose  of  access 

to  or  the  conveyance  of  the  minerals,  or  the  ventilation  or 

drainage  of  his  mine  or  otherwise  in  connection  with  the 

working  of  the  minerals."  ^    Like  the  undeveloped  land 

duty  this  is  a  direct  annual  levy,  but  the  rate  is  five  per 

cent  of  the  rental  value,  as  compared  with  the  one-fifth 

of  one  per  cent  tax  on  the  capital  value  of  undeveloped 

land. 

From  the  standpoint  of  the  government  the  amended 

provisions  were  an  improvement  over  the  original  proposal 

rather  than  a  concession  to  the  Opposition.    First,  the 

change  obviated  the  complexities  involved  in  valuing  un- 

worked  minerals,  and  made  the  administration  of  the  tax 

comparatively  simple.    In  case  of  a  lessee  —  most  mines 

are  operated  by  lessees  in  England  —  the  annual  value  is 

easily  ascertained,  for  it  is  the  amount  of  rent  paid  by  the 

working  lessee  in  the  last  working  year.    The  difficulty 

arises  in  computing  the  annual  value  in  case  the  proprietor 

himself  is  the  operator  of  the  mine.  The  law  provides  that 

the  Commissioner  shall  determine  the  rental  in  such  cases. 

He  is  to  determine  a  hypothetical  value,  "the  sum  which 

of  Scottish  miners  it  was  estimated  that  the  annual  value  of  the 
coal  in  Great  Britain  was  £120,000,000,  and  that  of  this  sum  nearly 
£10,000,000  were  paid  to  the  landowners  in  royalties.  The  mines  are 
for  the  most  part  worked  by  lessees,  who  also  protested  against  the  ex- 
orbitant rents  exacted  from  them.  "  In  one  important  section  of  our 
industries  we  are  already  sufficiently  and  more  than  sufficiently  handi- 
capped. The  country  at  large,  however,  knows  very  little  of  it,  but  it 
appeals  to  me  very  forcibly  indeed.  It  stands  up  against  me  in  every 
balance  sheet  of  the  various  companies  of  the  north  of  England  with 
which  I  am  connected.  These  companies  alone  during  the  last  ten  years 
have  paid  no  less  than  £761,000  in  royalties  and  way-leaves,  an  average 
of  £76,000  per  annum.  Apart  from  my  own  particular  interests,  the 
Cleveland  district  within  the  period  of  my  own  life-time  has  yielded 
royalties  to  a  sum  exceeding  £13,000,000  sterling."  Budget,  Land,  and 
the  People,  p.  48. 
»  Bill  144  (1910),  §  20.  *  Ibid.,  §  24. 


THE  ENGLISH  LANI>-VALUE  DUTIES         229 

would  have  been  received  as  rent  by  the  proprietor  in  the 
last  working  year  if  the  right  to  work  the  minerals  had  been 
leased  to  a  working  lessee  for  a  term,  and  at  a  rent,  and  on 
conditions,  customary  in  the  district,  and  the  minerals  had 
been  worked  to  the  same  extent  and  in  the  same  manner 
as  they  have  been  worked  by  the  proprietor  in  that  year."  ^ 
Another  difficulty  that  may  arise  in  the  administration  of 
the  duty  is  to  ascertain  the  amount  to  be  deducted  from 
the  taxable  annual  rental  for  expenditures  incurred  by  the 
proprietor  in  boring  and  proving  the  minerals.  In  regard 
to  this  allowance,  the  Act  provides  that,  when  the  rental 
is  shown  to  the  Commissioner  to  exceed  the  rental  custom- 
ary in  the  district,  and  to  represent  a  return  for  expendi- 
ture on  the  part  of  any  proprietor  which  would  ordinarily 
have  been  borne  by  the  lessee,  the  Commissioner  shall 
estimate  and  make  allowance  for  the  excess  amount  of 
rent. 

Secondly,  under  the  revised  proposal,  the  mineral-rights 
duty  became  a  more  productive  source  of  revenue.  Whereas 
under  the  original  plan  Lloyd  George  had  estimated  the 
yield  of  both  the  undeveloped  land  and  unworked  min- 
eral duties  at  about  £350,000  for  the  first  year,  when  the 
change  was  made  to  the  duty  on  rental,  he  set  the  estimate 
for  mineral-rights  duty  alone  at  £350,000.* 

In  one  respect,  however,  the  change  in  the  bill  was  said 
to  be  a  surrender  of  principle,  and  a  concession  to  the  Oppo- 
sition. As  the  bill  originally  stood,  the  tax  on  the  unworked 
minerals  would  have,  according  to  theory,  fallen  on  the 
proprietor  of  the  mine,  the  person  whom  it  was  intended 
to  burden.  Regarding  the  duty  as  finally  adopted,  i.e.,  on 
working  mines  only,  although  Lloyd  George  and  others 
contended  that  it  could  not  be  shifted  to  the  lessee  nor 
affect  the  market  price  of  the  product,  this  contention  has 

»  BQl  144  (1910),  §  20.  See  Pari.  Debates  (1909),  vol.  xn,  pp.  599  ff. 

*  Ibid.  (1909),  vol.  iv,  p.  540:  vol.  xi,  p.  604.  As  a  matter  of  fact  the 
revenue  yielded  even  the  first  year  greatly  exceeded  the  estimate.  Cf. 
infra,  §  14. 


2S0  THE  TAXATION  OF  LAND  VALUE 

been  questioned.  In  fact,  in  consenting  to  exempt  "com- 
mon clay,  common  brick  clay,  common  brick  earth,  or 
sand,  chalk,  limestone,  or  gravel,"  the  Chancellor  of  the 
Exchequer  was  inconsistent,  for  if  the  taxation  of  the  above- 
named  minerals  would  enhance  their  market  price,  why 
should  it  not  do  the  same  thing  in  the  case  of  the  other 
minerals?  It  may  have  been  merely  a  concession  to  the 
Opposition.  Nevertheless,  the  argument  that  upon  the 
renewal  of  the  lease  the  rental  would  be  raised  to  the 
amount  of  the  tax  capitalized,  causing  a  rise  in  the  price 
of  the  raw  material,  has  not  been  refuted  experimentally.^ 

The  complex  provisions  with  regard  to  the  assessment  of 
the  mineral-rights  duty,  arising  from  the  conflicting  or  syn- 
chronous occasion  for  the  value-increment  duty  on  mineral 
lands,  will  be  analyzed  in  the  following  section. 

§  11.  When  the  clauses  of  the  Finance  Act  relating  to  the 
mineral-rights  duty  are  analyzed,  we  find  in  reality  two 
duties  embraced  under  the  one  name:  first,  the  five  per 
cent  tax  on  the  rental  value  of  the  minerals  comprised  in 
a  mining  lease  or  being  worked  by  the  proprietor  at  the 
time  the  Act  was  passed  and  so  long  as  the  mines  continue 
to  be  so  worked;  secondly,  a  twenty  per  cent  tax  charged 
on  the  annual  value  increment  in  case  of  mines  opened 
for  work  after  the  30th  day  of  April,  1909.  Whenever  the 
annual  value-increment  duty  is  levied,  no  mineral-rights 
duty,  that  is,  no  five  per  cent  tax  on  the  rental,  is  collect- 
ible. When  the  purpose  of  this  provision  is  explained,  the 
seeming  complexity  will  disappear.  In  the  first  place,  be- 
cause mines  are  wasting  assets,  that  is,  are  subject  to 
depreciation  in  value  when  worked,  they  must  be  treated 
somewhat  differently  from  other  land  whose  tendency  is 
rather  to  increase  in  value.  Secondly,  since  the  mineral- 
rights  duty  is  charged  only  on  mines  which  are  being 

^  Pari.  Debates  (1909),  vol.  ix,  pp.  666  Jf.  Of  course,  the  law  provides 
that  the  proprietor,  not  the  operator  of  the  mine,  shall  be  liable  for  the 
tax.  The  question  is  whether  the  owner  is  the  ultimate  bearer  of  the 
duty. 


THE  ENGLISH  LAND-VALUE  DUTIES         231 

worked,  unworked  mines  would  be  at  an  advantage,  or  at 
a  premium,  unless  they  were  made  subject  to  the  value- 
increment  duty.  But  the  value-increment  duty,  thirdly, 
on  a  wasting  asset  is  impracticable,  because  the  value  in- 
crement on  the  occasion  of  a  transfer  could  not  be  deter- 
mined, for  the  value  on  the  occasion  might  be  found  to  be 
less  than  on  the  previous  occasion,  or  than  the  original  site 
value;  and  yet  the  rental  accruing  to  the  mine  owner  dur- 
ing the  period  might  have  included  an  increment.  There- 
fore, since  the  indirect  levy  of  the  value-increment  duty 
is  impracticable,  and  since  the  mineral-rights  duty  on 
working  mines  is  insufficient  without  the  value-increment 
duty,  the  annual  value-increment  duty  was  devised  to  ap- 
ply only  in  case  of  mines  opened  to  be  worked  after  April 
30,  1909. 

A  few  illustrations  of  the  method  of  assessment  will 
further  elucidate  the  complicated  provision:  (1)  Suppose 
A  owns  a  mine  which  is  unworked.  He  pays  no  mineral- 
rights  duty  on  it,  because  the  duty  is  inapplicable  to  un- 
worked mines.  The  owner  now  places  no  value  upon  the 
minerals;  therefore,  at  the  general  valuation  made,  it  is 
recorded  as  of  no  value  in  accordance  with  section  23  (2) 
of  the  Act.  Now,  suppose  A  sells  the  mine  in  1911  for 
£500.  Increment  duty  is  payable  on  the  whole  £500,  and 
amounts  to  £100.  Had  A  set  a  value  on  the  mine,  as  he  had 
a  right  to  do,  at  the  time  of  the  original  valuation,  he  would 
have  been  subject  to  less  value-increment  duty.^  (2)  Sup- 
pose A's  mine  was  being  worked  by  a  lessee,  B,  since  1905, 
in  payment  of  a  rental  of  £200  yearly.  ^  A  would  be  liable 

^  What  prevents  the  owner  from  putting  a  high  or  any  value  on  the 
mines  is  that  that  value  would  be  taken  also  as  the  sum  on  which  he 
would  pay  rates  and  death  duties  when  that  occasion  arose.  The  par- 
ticulars of  a  contested  case  of  assessment  under  this  clause  decided  in 
favor  of  the  Government  are  given  in  the  Solicitora'  Journal,  vol.  Lviii, 
p.  749. 

*  The  royalty  contracted  for  in  mining  leases  is  often  made  depend- 
ent upon  the  product  mined.  Thus  "  a  usual  form  of  mining  lease  reserves 
a  dead  rent  to  cover  a  certain  amount  of  minerals  brought  to  the  surface, 


282  THE, TAXATION  OF  LAND  VALUE 

for  mineral-rights  duty  at  the  rate  of  five  per  cent  of  the 
rental;  in  this  case  an  annual  tax  of  £lO  as  long  as  the 
mine  continued  to  be  worked.  (3)  Assume  that  B  who 
purchased  the  mine  in  1910  for  £500  leases  it  to  C,  to  be 
worked  at  an  annual  rental  of  £60.  B  will  now  be  hable 
for  an  annual  value-increment  duty  of  twenty  per  cent 
of  the  annual  value  increment.  To  ascertain  this  value, 
the  law  has  created  a  hypothetical  original  annual  value 
to  be  computed  at  "two-twenty-fifths  part  of  the  capital 
value  on  the  last  preceding  occasion  on  which  value- 
increment  duty  has  been  collected  otherwise  than  as  an 
annual  duty."  ^  In  other  words,  the  value  increment  in 
the  illustration  above  is  the  difference  between  the  rental 
£60  and  two  twenty-fifths  of  £500,  or  £40;  at  the  rate  of 
twenty  per  cent  the  annual  increment  tax  will  be  £4.  In 
this  case  also  the  duty  will  continue  to  be  levied  while  the 
mine  is  being  operated.  When  the  mine  ceases  to  be  worked 
the  proprietor  will  again  have  the  option  of  placing  a  value 
upon  it  or  not.  If  later  the  mine  is  sold  or  passes  on  death, 
while  it  is  yet  unworked,  value-increment  duty  will  be 
paid  in  a  lump  sum;  if  it  is  leased  or  recommences  to  be 
worked  by  the  proprietor,  annual  value-increment  duty  will 
be  payable.^ 

It  is  important  to  note  that  in  accordance  with  the  Act 
the  reversion  and  value-increment  duties  are  suspended 

with  a  royalty  on  the  excess,  a  power  to  make  up  shortages  and  a  cesser 
of  rent  on  payment  either  by  rent  or  royalty  of  a  certain  sum  being  the 
estimated  value  of  the  minerals  or  the  mine.  In  the  case  of  such  a  lease 
it  is  possible,  that  increment-value  duty  may  in  some  cases  greatly  ex- 
ceed the  dead  rent,  in  others  be  nothing  at  all.  The  proprietor  will  often 
pay  far  more  by  way  of  increment-value  duty  under  the  provisions  of 
this  section  than  he  would  if  he  paid  on  a  capital  sum.  But  he  obtains 
some  security  against  paying  on  an  unrealized  increment."  Napier,  The 
New  Land  Taxes,  pp.  112-13. 

*  Bill  144  (1910),  §  22.  This  arbitrary,  hypothetical  annual  value  is 
on  the  basis  of  twelve  and  a  half  years  piu-chase,  which  even  for  mineral 
lands  is  a  reasonable,  i.e.,  short  period  for  capitalization.  Pari.  Debater 
(1909),  vol.  XI,  p.  1271. 

•  Napier,  op.  cit.,  pp.  ixaff. 


THE  ENGLISH  LANI>-VALUE  DUTIES        £33 

with  regard  to  mineral  land  only  when  their  levy  would 
involve  the  double  taxation  of  such  land.  Thus  reversion 
duty  is  payable  in  case  of  a  non-mining  lease  of  land  even  if 
it  contains  minerals,  or  of  a  lease  of  land  containing  any  of 
the  exempted  minerals,  such  as  common  clay,  brick  clay, 
limestone,  gravel,  etc.  Thus  also  mineral  land,  as  we  have 
seen,  is  liable  to  the  indirect  levy  of  value-increment  duty, 
except  while  the  mine  is  being  worked.  Moreover,  the 
payment  of  the  annual  value-increment  duty  relieves  the 
proprietor  or  lessor  from  the  payment  of  mineral-rights 
duty  only  to  the  amount  of  value-increment  duty  paid  by 
him  in  that  year.  Other  provisions  to  be  noted  are  as  fol- 
lows: (1)  A  reduction  of  duty  is  allowed  when  the  rental 
represents  in  part  a  return  for  money  expended  within 
fifteen  years  by  a  lessor  in  boring  or  otherwise  proving  the 
minerals.^  (2)  When  a  mine  subject  to  duty  ceases  to  be 
worked  for  two  years,  it  is  regarded  as  an  unworked  mine 
upon  which  a  capital  value  must  be  placed.^  (3)  Not  only 
is  a  leased  mine  subject  to  duty,  but  Ukewise  any  way- 
leave. 

§  12.  From  the  foregoing  analysis  of  the  duties,  it  will 
be  clear  that  the  administration  of  the  new  taxes  is  not 
simple.  Besides  the  assessment  and  collection,  the  Com- 
missioners were  confronted  with  the  colossal  task  of  valuing 
all  the  land  in  the  United  Kingdom  including  Ireland, 
approximately  eleven  million  hereditaments.'  The  admin- 
istration including  the  valuation  was  put  in  the  hands  of 
the  Commissioners  of  Inland  Revenue.   But  so  enormous 

1  Bill  144  (1910),  §22  (4). 

*  Ibid.,  §  23.  As  we  have  already  pointed  out,  unless  the  proprietor  fur- 
nishes the  commissioners  an  estimate  of  the  capital  value  of  the  minerals, 
specifying  the  kind  of  minerals  the  land  contains,  the  mine  is  assumed  to 
have  no  value.  The  consequence  of  this  provision  will  readily  be  per- 
ceived. It  places  the  owner  in  a  predicament;  for  while  it  is  in  his  interest 
for  purposes  of  value-increment  duty  to  place  as  high  a  value  as  possible 
on  his  mineral  land,  for  purposes  of  estate  duty  or  local  rating,  it  is  in  his 
interest  to  estimate  the  value  as  low  as  possible. 

*  Report  of  the  Commissioner  of  Inland  Revenue  (Cd.  5833),  1911,  p.  149. 


£84  THE  TAXATION  OF  LAND  VALUE 

was  the  task  of  establishing  the  machinery  of  the  system 
that  a  new  department  had  to  be  founded,  namely,  the 
Valuation  Department,  and  the  services  of  the  Assessors 
of  Income  Tax,  who  are  appointed  for  each  Income  Tax 
Parish  by  the  District  Commissioners  of  Taxes  and  who, 
therefore,  have  local  knowledge  of  the  rating  assessment 
books,  had  to  be  employed.  The  help  of  these  assessors, 
called  Land  Valuation  Officers,  was  dispensed  with,  how- 
ever, as  soon  as  their  reports  had  been  turned  in  to  the 
District  Valuers.^ 

For  the  purposes  of  the  valuation  the  United  Kingdom  is 
divided  into  fourteen  Divisions,  each  of  which  is  under  the 
control  of  a  Superintending  Valuer.  Each  Division  in  turn 
is  subdivided  into  Districts,  under  the  charge  of  a  District 
Valuer,  a  number  of  Assistant  Valuers  and  a  staff  of  cleri- 
cal and  technical  assistants.  A  number  of  expert  Mineral 
Valuers  are  also  employed.^  All  the  valuers  are  responsible 
to  the  Chief  Valuer,  the  head  of  the  Valuation  Depart- 
ment. The  administrative  duties  are  performed  by  a  staff 
consisting  of  an  Assistant  Secretary,  four  Committee 
Clerks  and  assistants.  In  Ireland,  the  valuation  of  the 
land  is  under  the  charge  of  the  Government  Valuation 
Department  which  was  already  in  existence  at  the  time 
of  the  passing  of  the  Act.  The  work  of  valuation  is 
much  facilitated  in  Ireland  because  the  detailed  particu- 
lars regarding  estates  are  already  known  to  the  Depart- 
ment. 

Considering  the  important  results,  statistical  and  fiscal, 
which  the  leaders  of  the  government  hoped  to  accomplish 
through  the  valuation,  the  procedure  should  be  further  de- 
scribed. When  the  valuation  shall  be  completed,  the  record 

*  Report  of  the  Commissioner  of  Inland  Revenue  (Cd.  583S),  1911,  pp. 
158-59. 

*  In  1911  there  were  employed  one  Chief  Valuer  at  a  salary  of  £1200; 
15  Superintending  Valuers  at  salaries  of  £800  each;  49  Valuers  of  the 
First  Class,  and  107  of  the  Second  Class  at  salaries  of  £550  and  £350, 
respectively,  and  1376  assistants,  etc.  Ibid.,  p.  157. 


THE  ENGLISH  LAND-VALUE  DUTIES         235 

of  the  value,  character,  and  boundaries  of  every  parcel  of 
land  will  constitute  another  "Domesday  Book,"  the  fa- 
mous undertaking  of  land  valuation  in  William  the  Con- 
queror's time.^  Each  hereditament  has  to  be  classified  and 
numbered  by  the  Land  Valuation  Officers,  and  forms  of  re- 
turn prepared  and  issued  to  owners  in  accordance  with  the 
provision  of  the  Act.  These  forms  have  been  subjected  to 
much  criticism,  2  because  of  the  detailed  particulars  which 
the  owner  is  called  upon  to  give.  Especially  is  this  true  of 
Form  4  issued  for  purposes  of  the  value-increment  duty.' 
From  statutory  companies,  such  as  railway,  dock,  or  other 
quasi-public  companies,  only  the  cost  of  the  land  to  the 
company  is  required. 

Having  gathered  the  returns  from  the  owners,*  a  provi- 
sional valuation  is  made  and  served  upon  the  owner  or  any 
other  interested  party  who  has  applied  for  a  copy  of  the 
valuation.  The  unit  of  valuation  is  the  hereditament,  or 
unit  of  occupation  as  on  April  30,  1909;  but  at  the  request 
of  the  owner  a  smaller  unit  may  be  taken  if  such  heredita- 
ment is  under  separate  occupation.  This  provision  has, 
however,  been  amended  allowing,  under  certain  conditions, 
parcels  of  land  if  owned  by  one  person  to  be  valued  together, 
provided  the  aggregate  area  does  not  exceed  one  hundred 
acres.*   Unless  the  owner  gives  notice  of  objection  to  the 

^  The  Commissioner  mentions  one  case  of  an  estate  which  has  remained 
in  the  hands  of  one  family  from  the  time  of  William  the  Conqueror's 
Domesday  Book  to  this  day.  The  estate  covering  about  2,296  acres  is  now 
valued  at  about  £26,748,  the  annual  value  being  over  £1428.  Report  of 
the  Commissioner  of  Inland  Revenue  (Cd.  5833),  1911,  pp.  149,  168. 

«  Cf.  Pari.  Debates  (1913),  vol.  l,  pp.  1527-39,  160/. 

'  Besides  particulars  concerning  ownership,  tenure,  and  area,  the 
owners  are  required  to  state  the  annual  value,  the  annual  value  of  the 
fixed  charges,  of  the  public  right  of  way,  of  right  of  common,  of  the  public 
rights  of  user,  of  easements  and  covenants,  etc.  Additional  particulars 
as  to  gross  value,  site  value,  total  value,  assessable  site  value  and  particu- 
lars as  to  how  the  values  were  arrived  at  may  be  returned,  if  desired. 

*  Dxu-ing  1910-11,  about  10,700,000  forms  were  sent  out,  the  number 
of  returns  was  9,600,000.  RejtoH,  etc.  (Cd.  5833),  p.  160. 

»  Revenue  Act  (1911),  §  4. 


«S6  THE  TAXATION  OF  LAND  VALUE 

provisional  valuation  within  sixty  days,  the  valuation  be- 
comes permanently  adopted  as  the  original  site  value. 
This  value  can  then  be  changed  for  a  different  apportion- 
ment only  in  case  the  unit  of  valuation  is  changed. 

The  valuation  will  serve  as  the  basis  of  the  levy  of  value- 
increment  duty  and  of  undeveloped  land  duty.  In  case  of 
the  former,  a  subsequent  valuation  of  the  land  will  be  made 
whenever  an  occasion  for  duty  arises.  For  this  subsequent 
valuation,  the  selling  price  in  case  of  a  sale  is  taken  as  the 
"total  value, "  and  by  a  process  of  deductions  the  site  value 
is  obtained.  Both  for  the  original  site  value  and  for  the 
subsequent  valuations,  the  "total"  and  "site"  values  are 
to  be  recorded.  The  process  of  attaining  these  is  shown 
by  the  form  on  the  opposite  page.^ 

The  value-increment  duty  is  a  stamp  duty.  Thus,  the 
document  of  transfer  must  be  sent  to  the  Revenue  Office 
and  the  stamp  affixed  to  the  deed.^ 

For  imdeveloped  land  duty  the  original  site  value  is  the 
assessable  value.  As  the  Act  provides  for  quinquennial 
valuation  only,  the  value  for  purposes  of  undeveloped  land 
duty  remains  unchanged  for  five  years.  The  quinquennial 
valuations  will  serve  also  as  the  basis  for  levying  value- 
increment  duty  in  case  of  corporations  on  April  5,  1914, 
and  every  fifteenth  year  thereafter.' 

A  special  form  of  return  is  issued  for  purposes  of  paying 
reversion  duty.*  All  persons  to  whom  a  benefit  accrues  on 

^  Form  of  Notice  of  Appeal  (A)  Schedule  to  the  Land  Values  (Refer- 
ence) Rules,  1910,  made  by  the  Reference  Committee  for  England  under 
§  33  of  Finance  Act  (1909-10).  The  complexity  of  procedure  will  be 
noticed. 

*  There  are  two  other  kinds  of  stamps,  one  "indicating  that  all  par- 
ticulars necessary  to  enable  a  correct  assessment  to  be  made  have  been 
furnished";  the  other,  the  "no  duty  payable"  stamp,  where  no  claim 
for  duty  can  arise.  Report,  etc.  (Cd.  5833),  p.  163. 

'  Important  amendments  in  1913  (Revenue  Bill  175,  §  13)  provide 
for  the  first  revaluation  of  the  land  in  1916,  instead  of  in  1914,  and  make 
April  5,  1919,  the  first  periodical  occasion  for  levying  duty  on  corpora- 
tions. 

*  Cf.  Report,  etc.  (Cd.  5833),  Appendix  II  (F),  p.  181. 


THE  ENGLISH  LAND-VALUE  DUTIES        237 


County 


Provisional  Valuation 
Parish 


No.  of  hereditament 


1.  Gross  Value 


Deductions  from  Gross  Value 

(a)  To  arrive  at  Full  Site  Value 

(6)  To  arrive  at  Total  Value 

2 

Difference  between  Gross 
Value  and  Value  of  the 
Fee  Simple  of  the  Land 

3.  Fee  Farm  Rent,  Rent" 
Seek,  Quit  Rent,  Chief 
Rent,  or  Rent  of  As- 

divested   of  Buildings, 

size. 

4^ 

Trees,  etc. 

4.  Other  Perpetual  Rent 
or  Annuity. 

5.  Tithe  or  Tithe   Rent 
Charge. 

6.  Burden  or  charge  aris- 
ing   by    operation    of 
Law   or    imposed    by 
Act  of  Parliament. 

.1 

■s 

7.  If  Copyhold,  Cost  of  En- 

franchisement. 

8.  Public  Right  of  Way  or 

User. 

9.  Rights  of  Common. 

10.  Easements. 

11.  Restrictions  under  cove- 

nant or  Agreement. 

Total  Deductions 

Total  Deductions 

Full  Site  Value 

Total  Value 

Deductions  from  Total  Value  to  Arrive  at  Assessable  Site  Value. 

12.  Deductions  from  Gross  Value  i 

0  arrive  at  Full  Site  Value 
(as  above) 

13.  Works  executed. 

14.  Capital  Expenditure. 

15.  Appropriation  of  Land  for  stret 

;ts,  roads,  open  spaces,  etc. 

16.  Redemption  of  Ijand  Tax  or  FL 

sed  Charge. 

17.  Enfranchisement  of  Copyholds. 

18.  Release  of  Restrictive  Covenants. 

19.  Goodwill  or  personal  elements. 

20.  Cost  of  clearing  site. 

Total  Deductions. 

Assessable  Si 

te  Value. 

2S8  THE  TAXATION  OF  LAND  VALUE 

the  expiration  of  a  lease  are  required  to  return  this  form 
filled  in  to  the  District  Valuer,  who  makes  and  reports  the 
valuation  to  the  Revenue  Office.  For  reversion  duty,  there- 
fore, as  for  mineral-rights  duty,  the  provisional  valuation 
is  not  necessary.  Mineral  land,  indeed,  is  treated  as  a  sepa- 
rate parcel  of  land.  ^  Minerals  are  to  be  valued  showing  the 
total  or  market  value,  and  the  capital  value,  that  is,  the 
market  value  less  the  value  attributable  to  any  works  exe- 
cuted or  expenditures  incurred.  As  mineral-rights  duty  is 
for  the  most  part  charged  on  the  actual  rent  paid  there  is 
little  difficulty  in  its  collection,  since  the  existing  machin- 
ery for  the  assessment  and  collection  of  the  Income  Tax 
can  be  employed;  and  the  data  needed  for  mineral-rights 
duty  were  made  accessible  in  that  way.  The  progress  made 
by  the  Commissioners  and  the  difficulties  encountered  will 
be  considered  in  the  following  section. 

§  13.  The  progress  made  in  the  valuation  can  be  judged 
from  the  fact  that  out  of  the  eleven  million  hereditaments 
in  the  three  Kingdoms,  about  four  and  one-half  millions 
in  the  United  Kingdom  alone  had,  up  to  May,  1913,  been 
valued.  The  following  year  the  total  number  of  heredita- 
ments valued  had  reached  the  figure,  eight  millions.^ 
The  valuation  of  Ireland  has  proceeded  less  rapidly.  Up 
to  September,  1912,  about  twenty-five  thousand  heredita- 
ments had  been  reported  as  valued.'  The  number  of 
"occasion"  valuations  in  Great  Britain  for  collection  of 
value-increment  duty  was  up  to  the  same  date  539,970, 
The  cost  of  valuation  and  collection  to  March,  1913,  was 
£1,390,000,^  and  it  was  estimated  that  each  valuation  for 

»  Bill  144  (1910),  §  23. 

*  Statement  by  Lloyd  George  in  House  of  Commons.  Pari.  Debates 
(1913),  vol.  m,  p.  886;  ibid.  (1914),  vol.  lxiv,  p.  286. 

»  Ibid.  (1913),  vol.  L,  p.  836. 
,    *  Ibid.,  vol.  LU,  p.  811.   The  cost  has  been  as  follows  : — 
1910-11,  £332,559. 
1911-12,  £355,290. 
1912-13,  £506.653. 
(Estimated  cost)  1913-14,  £630,086. 
Ibid.,  vol.  LI,  pp.  376-77;  vol.  ui,  p.  1682. 


THE  ENGLISH  LAND-VALUE  DUTIES        239 

value-increment  duty  costs  the  Government  a  guinea.* 
By  March,  1914,  the  expense  of  the  department  had  in- 
creased to  £2,178,397;  and  by  1915  to  very  nearly  £3,000,- 
000.2  -pijg  number  of  officials  employed  in  the  Valuation 
Department  had  increased  as  shown  below:' 

1910-11,  1550  persons. 
1911-12,  2830 
1912-13,  4150 
1913-14,  4650 

Over  four  thousand  of  the  employees  in  1914  were 
temporary  appointees. 

When  we  are  told,  however,  that  only  three  and  one-half 
millions  of  the  four  and  one-half  million  provisional  valu- 
ations in  1913  had  been  settled  or  recorded  as  permanent, 
we  realize  the  serious  problems  which  confront  the  valuers 
and  which  have  given  rise  to  many  appeals.  First,  as 
regards  the  machinery  provided  for  appeals,  except  in  the 
few  instances  where  the  Conunissioners'  decision  is  final.^ 
In  the  first  instance  an  appeal  may  be  made  to  a  referee. 
The  Act  provides  ^  for  the  appointment  of  a  Reference 
Committee  for  each  Kingdom  to  be  composed  for  England 
of  the  Lord  Chief  Justice  of  England,  the  Master  of  the 
Rolls  and  the  President  of  the  Surveyors'  Institution. 
The  Reference  Committee  in  turn  appoints  the  referees 
out  of  a  panel  composed  of  persons  admitted  as  Fellows  of 

1  Pari.  Debates  (1913),  vol.  LI,  p.  376. 

*  Ibid.,  vol.  Lii,  p.  811;  (1914),  vol.  LXin,  p.  1605;  (1915),  vol.  Lxxii, 
p.  508.  Lloyd  George's  expectation  that  the  valuation  would  be  practi- 
cally completed  by  March  31,  1915,  did  not  materialize.  Judging  from 
the  rate  of  progress  made  in  the  preceding  years,  however,  the  cause  may 
lie  in  the  interruption  of  the  work  occasioned  by  the  enlistment  for 
the  war  of  several  thousand  of  the  men  in  the  Valuation  Department. 

»  Ibid.  (1915),  vol.  ijoa,  p.  2366;  (1914),  vol.  LViii,  p.  782. 

*  The  Commissioners*  decision  is  to  be  considered  final  in  judging  of 
the  value  of  the  covenant  entered  into  in  determining  the  "  total  value  " 
under  §  25  (3),  and  in  assessing  for  undeveloped  land  duty  under  §  17  (3) 
of  the  Act. 

»  Bill  144  (1910),  §§  33  and  34. 


840  THE  TAXATION  OF  LAND  VALUE 

the  Surveyors'  Institution,  or  other  persons  having  experi- 
ence in  the  valuation  of  land.  The  referee  appealed  to  de- 
termines all  matters  of  valuation  in  consultation  with  the 
Commissioners  and  the  appellant,  or  any  persons  nomi- 
nated by  the  Commissioners  and  appellant,  respectively,  for 
the  purpose.  The  referee  is  also  authorized  to  decide  who 
shall  be  liable  for  the  expenses  incurred.  The  owner  or 
Commissioner  may  appeal  from  the  decision  of  the  referee 
to  the  High  Court.  Or  in  cases  of  disputes  involving  not 
more  than  £500  the  appellant  may  have  recourse  to  the 
County  Court  instead  of  to  the  High  Court.  Further 
appeal  may  also  be  had  to  the  Court  of  Appeal. 

According  to  Lloyd  George's  estimate,  only  one  out  of 
every  833  valuations  has  been  subject  to  appeal.^  Until 
February,  1913,  4466  appeals  were  entered  against  the 
provisional  valuations,  .118  per  cent  of  the  total  number.^ 
But  only  a  few  of  these  even  came  before  the  referee,  the 
greater  number  of  objections  being  adjusted  between  the 
owner  and  the  Commissioner.  Only  in  the  case  of  155 
hereditaments  up  to  1913  did  the  appeal  reach  the  referee.' 
Of  twenty  cases  before  the  referee  on  the  question  of  valu- 
ation, twelve  were  decided  in  favor  of  the  valuers,  in  five 
there  was  a  compromise,  while  three  were  decided  against 
the  Commissioners.*  Until  March,  1913, 1272  appeals  were 
taken  against  the  undeveloped  land  duty,  and  123  against 
the  value-increment  duty.^ 

But  it  is  the  character  of  the  appeals,  more  than  the 
number,  that  in  the  eyes  of  many  condemns  the  present 
system  of  levy  of  the  land-value  duties.  This  becomes  evi- 
dent from  the  fact  that  the  collection  of  both  the  undevel- 
oped land  duty  and  the  value-increment  duty  is  tempora- 
rily altogether  in  abeyance  as  a  result  of  certain  judicial 
decisions,®    There  have  occurred  a  few  important  cases, 

»  Pari.  Debates  (1913),  vol.  Ul,  p.  886.  *  Ibid.,  vol.  L,  p.  1591. 

»  Ibid.,  vol.  LU,  p.  886.  *  Ibid.,  vol.  L,  p.  1591. 

8  Ibid.,  vol.  u,  p.  1163.  «  Ibid,  (1915),  vol.  lxxi,  p.  2366. 


THE  ENGLISH  LAND-VALUE  DUTIES        241 

which,  when  the  decision  of  the  referee  was  unfavorable 
to  the  Commissioners,  were  appealed  by  the  latter  to  the 
High  Court,  as  test  cases.  One  of  these  cases,  Herbert's 
Trustees  versus  the  Commissioners  of  Inland  Revenue,  has 
given  rise  to  a  great  deal  of  criticism  due  to  the  ambiguity 
of  the  definitions  of  value  under  the  value-increment  duty 
clauses.  The  estate  in  question  is  located  in  Glasgow  and 
its  assessable  site  value  was  fixed  at  minus  £545.  This 
value  was  obtained  by  computing  the  assessable  site  value, 
in  accordance  with  the  Act,  from  the  total  value  after  cer- 
tain deductions  had  been  made.  As  in  this  case,  it  may 
happen  that  the  value  of  the  deductions  to  be  made  from 
the  total  value  exceeds  the  total  value,  ^  thus  resulting  in 
a  mimis  quantity  for  the  assessable  site  value.  The  Scot- 
tish Lands  Valuation  Appeal  court  decided  that  a  minus 
value  could  not  exist,  that  value  could  not  mean  minus 
value;  ^  but  upon  appeal  to  the  High  Court  this  decision 
was  reversed.'  Although  a  minus  assessable  value  is  logi- 
cally admissible,  for  an  increment  in  value  may  represent  a 
decrease  in  burden  as  well  as  a  positive  increase  in  advan- 
tage, nevertheless  such  a  value  is  merely  hypothetical  and 
theoretical  and  indicates  the  complexities  of  the  Act. 
Moreover,  a  further  diflficulty  presented  itself  when  the 
minu^  value  was  legalized.  The  Court  had  to  decide  that 
in  accordance  with  the  provision  of  exempting  ten  per 
cent  of  the  original  site  value,  the  ten  per  cent  deduction 
was  to  be  of  the  full  site  value,  not  of  the  assessable  site 

'  In  the  case  mentioned  the  deductions  amounted  to  £4320,  the  total 
value  to  £3775,  leaving  —£545  for  the  assessable  site  value.  "  Assessable 
site  value  is  something  more  than  the  value  of  the  cleared  land;  as  the 
value  of  a  building  and  site  on  which  the  building  stands  is  always  some- 
thing more  than  (different  than)  the  arithmetical  sum  of  the  two  values 
of  the  building  and  site."  (Cox-Sinclair  and  T.  Hynes  in  Law  Magazine 
and  Review,  vol.  xxxviii,  p.  336.)  In  other  words,  the  difficulty  of  deter- 
mining the  value  of  the  separate  units  in  a  compound  for  which  both 
units  are  indispensable  is  here  shown. 

'  Cf.  Solicitors'  Journal,  vol.  Lvi,  p.  469. 

»  Pari.  Debates  (1913),  vol.  uv,  pp.  2266-67. 


242  THE  TAXATION  OF  LAND  VALUE 

value, ^  for  to  take  ten  per  cent  of  a  minus  quantity  as  a 
deduction  from  duty  would  be  absurd. 

Another  case  which  aroused  the  ire  of  the  Opposition  and 
which  led  to  the  amendment  of  the  Finance  Act  was  the 
Lumsden  case.  In  1911,  Mr.  Lumsden,  a  speculative 
builder,  sold  a  piece  of  property  for  £750.  The  property 
had  not  then  been  valued  under  the  Finance  Act  to  ascer- 
tain the  original  site  value.  When  the  oflBcial  valuation 
was  made,  some  months  after  the  sale,  the  original  site 
value  was  fixed  at  £625  or  £125  less  than  the  property  had 
sold  for.  Mr.  Lumsden  was  said  to  have  agreed  that  the 
value  of  the  property  as  by  a  willing  seller  to  a  willing 
buyer  was  £625  as  fixed  by  the  valuer.  He  had  neverthe- 
less succeeded  in  selUng  it  for  £750  because  the  buyer  be- 
lieved he  had  a  monopoly  location  for  the  shop  which  was 
upon  the  site.^  The  decision  of  the  referee,  upheld  by  the 
Court,  was  that  the  property  was  liable  for  value-increment 
duty  on  the  £125.  Although  it  seemed  evident  even  to  the 
government  that  the  value  of  the  site  had  not  increased,  the 
latter  contended  that  the  increment  was  a  "fortuitous 
windfall"  and  therefore,  taxable.  On  the  other  side,  it  was 
argued  that  the  profit  made  by  Mr.  Lumsden  was  due  to 
the  existence  of  the  shop  and  to  his  personal  abiUty;  hence 
was  not  taxable.  It  is  worth  noting  that  in  spite  of  the  fa- 
vorable decision  of  the  Court,  the  government  introduced  an 
amendment '  in  1913  which  will  prevent  the  recurrence  of 
taxing  "fortuitous  windfalls"  in  case  of  improved  property 
of  which  the  building  is  worth  more  than  the  site.^ 

»  Pari.  Debates  (1913),  vol.  LVi,  p.  319.  In  1913  (see  Revenue  Bill 
175,  §  6)  the  amendment  stipulated  that  where  the  site  value  on  which 
the  reduction  would  be  calculated  is  less  than  £100,  the  reduction  may 
be  calculated  as  ten  per  cent  of  the  value  increment. 

»  Ibid.,  vol.  L,  pp.  184,  187. 

'  The  Revenue  Bill  (1913),  §  2.  This  clause  gives  the  owner  of  im- 
proved property,  when  the  value  of  the  buildings  exceeds  that  of  the  site, 
the  option  of  having  the  property  valued  on  the  basis  of  the  hypothetical 
value  as  under  the  Act  or  on  the  basis  of  the  actual  selling  price. 

*  The  Land  Union,  an  organization  opposed  to  land-value  taxation, 


THE  ENGLISH  LAND-VALUE  DUTIES        243 

In  the  valuation  of  agricultural  land  also  some  difficul- 
ties have  arisen.  It  is  charged  that  the  valuers  include 
fences,  roads,  drains,  and  manuring  in  the  site  value  of 
agricultural  land.  Some  cases  contesting  this  practice  have 
arisen.  Another  question  which  was,  in  1913,  sub  judice, 
was  whether  or  not  tenants'  rights  should  be  deducted 
from  the  agricultural  value  of  the  land.  Between  two  and 
three  million  acres  of  agricultural  land  are  liable  to  unde- 
veloped land  duty.^ 

In  view  of  the  serious  defects  in  the  law  and  of  the 
numerous  loopholes  for  evasion  of  taxation,^  the  wide- 
spread dissatisfaction  with  the  land-value  duties,  even  on 
the  part  of  those  who  helped  pass  the  measure,'  is  explain- 
able. The  valuation  has  been  practically  condenmed  by 
the  Departmental  Committee  on  Taxation  *  and  in  the 
report  of  the  Land  Conference,  the  latter  finding  such  a 
lack  of  uniformity  in  valuation  that  "it  could  not  be  fairly 
used  either  for  the  purposes  of  a  national  tax  or  even  for 
the  assessment  of  duties  imposed  by  the  'People's  Budget* 
itself."  ^  Nevertheless,  granting  that  the  expense  of  valua- 
tion has  already  been  enormous  and  out  of  all  proportion 

and  that  has  tried  to  get  adverse  decisions  on  the  commissioners'  valuar 
tions,  threatened  to  appeal  the  Lmnsden  case  to  the  High  Court.  The 
case  did  reach  the  House  of  Lords  where  the  vote  of  the  four  judges 
was  evenly  divided.  A  member  of  the  Opposition  said  in  the  House  of 
Conunons  that  the  Government  would  have  preferred  an  adverse  decision 
in  this  case,  because  the  claim  of  Mr.  Lumsden  was  generally  conceded, 
and  no  amendment  to  the  law  would  then  have  been  necessary.  Cf. 
Pari.  Debates  (1914),  vol.  Lxv.  pp.  631,  672. 

»  Ibid.  (1913),  vol.  L,  p.  177;  vol.  m.  p.  1146;  (1914),  vol.  Lvra, 
p.  821. 

*  Cf.  Law  Quarterly  Review  (1914),  vol.  xxx,  p.  180;  Law  Magazine  and 
Review,  vol.  xxxix,  pp.  326  Jf. 

'  Cf.  Pari.  Debates  (1913),  vol.  L,  p.  176. 

*  Ibid.  (1914),  vol.  Lxn,  pp.  477-78. 

'  Both  bodies  mentioned  above  are  said  to  have  been  composed  of  a 
partisan  and  prejudiced  majority.  At  the  Land  Conference  the  Survey- 
ors' Institute,  the  Auctioneers*  Institute,  the  Land  Agents'  Society,  the 
Chamber  of  Agriculture,  the  Farmers'  Union,  etc.,  were  represented. 
Ibid.,  vol.  Lviii,  p.  812. 


244  THE  TAXATION  OF  LAND  VALUE 

to  the  yield  of  the  taxes  thus  far  collected,  granting  that 
the  herculean  task  of  valuation  will  yet  cost  millions  of 
pounds  before  completion/  granting  also  that  hardships 
have  been  entailed  in  some  cases  in  levying  the  taxes, 
and  that  difficulties  have  arisen  sufficient  to  question  the 
possibility  of  accurate  valuation,  the  conclusion,  neverthe- 
less, cannot  be  escaped  that  when  completed  the  data'' 
will  not  only  be  invaluable  for  statistical  purposes,  but 
will  have  far-reaching  effects  fiscally  and  socially. 

§  14.  If  the  valuation  of  the  land  has  been  subjected  to 
ridicule,  the  land-value  duties  have  fared  no  better.  From 
a  fiscal  standpoint  the  powerful  opposition  which  the 
land  taxes  encountered  seems  scarcely  warranted.  More- 
over, the  fact  that  after  half  a  dozen  years  the  opposition 
has  not  abated  and  that  the  law  stands  unrepealed  con- 
firms the  conclusion  expressed  earlier  that  a  social  princi- 
ple, not  fiscal  expediency,  was  involved  in  its  enactment. 
The  receipts  from  the  land  duties  have  been  disappointing 
beyond  measure.  Already  for  the  year  1910-11  the  yield 
(the  mineral-rights  duty  excepted)  fell  short  of  the  official  es- 
timate.' And  instead  of  increasing  in  amount  as  had  been 
predicted,  the  revenue  from  three  of  the  duties,  as  appears 
from  the  subjoined  data,  continues  to  be  inconsiderable. 

^  It  will  be  remembered  that  in  accordance  with  the  provisions  of  the 
amended  Act  a  revaluation  of  the  land  in  1916  is  due. 

*  The  new  Domesday  Book  will  be  a  card  catalogue  of  all  the  land  in 
the  three  Kingdoms.  One  card  is  given  to  each  unit  or  hereditament;  it 
contains  the  particulars  of  the  original  and  subsequent  valuations,  and 
bears  the  identification  number  of  each  parish.  The  cards  of  each  parish 
are  filed  in  separate  cabinets  and  arranged  in  numerical  order.  Report 
of  the  Commissioners  of  Inland  Revenue  (1911),  p.  166. 

Estimated  receipts  Actual  net  proceeds 


Value-Increment  Duty 

£50,000 

£127 

Reversion  Duty 

100,000 

258 

Undeveloped  Land  Duty 

100,000 

2,351 

Mineral-Rights  Duty 

350,000 

506,289 

£600,000  £509,025 

This  is  according  to  the  revised  estimate  of  the  Chancellor.    Cf.  Pari. 
Debates  (1909),  vol.  iv,  p.  542;  vol.  xu,  p.  702. 


THE  ENGLISH  LAND-VALUE  DUTIES        245 
RECEIPTS  FROM  LAND-VALUE  DUTIES.  1910-19IS» 


1910-1911 

1911-191S 

191S-191S 

1913-191 i 

19H-1916 

Total  up 
to  March 
SI,  1915 

Value-incre- 
ment duty 

Reversion 
duty 

Undeveloped 
land  duty 

Mineral- 
rights  duty 

£127 

258 

2,351 

506.289 

£6,127 

22.620 

28,947 

436,194 

£17,000 
48,000 
98,000 

298,000 

£31,000 

80,000 

275,000 

349,000 

£48,316 

19,313 

8,657 

£106,000 
170,000 
413,000 

Total... 

£509,025 

£493,888 

£461,000 

£735,000 

£725.000 

•• 

How  unproductive  a  source  of  revenue  the  duties  have 
been  is  further  apparent  from  a  comparison  of  their  total 
yield  with  the  cost  of  their  collection  and  valuation,  the 
cost  exceeding  the  receipts  up  to  1915.  Of  the  four  duties 
the  mineral-rights  duty  has  proved  the  most  productive 
and  promises  to  yield  a  stable  annual  amount.  It  is  worth 
noting  that  the  Opposition  even  seems  reconciled  to  this 
duty,  regarding  it  as  part  of  the  income  tax.'^  The  produc- 
tiveness of  the  duty  on  mineral  rights  is  attributable  to  its 
characteristics:  (1)  No  valuation  of  the  land  is  necessary 
for  its  assessment;  (2)  the  machinery  of  assessment  already 
existed  at  the  time  of  the  enactment;  (3)  it  is  a  direct  levy, 
not  dependent  upon  the  number  of  transfers  of  property. 
In  contrast,  the  proceeds  from  the  undeveloped  land  duty, 
as  a  direct,  annual  tax,  are  exceedingly  trifling.  This  is 
explicable  on  various  grounds:  first,  inasmuch  as  the  duty 
is  collected  only  on  the  unimproved  land  that  has  been 
valued,  the  true  yield  of  the  undeveloped  land  duty  will 
not  be  known  until  the  valuation  has  been  completed;' 

*  Data  taken  from  Pari.  Debates  (1915),  vol.  lxxi,  p.  2366;  vol.  lxxii, 
p.  1478;  HazeWs  Annual  Register  (1912),  p.  121;  Statesman's  Yearbook 
(1915),  p.  48. 

»  Pari.  Debates  (1915),  vol.  isxxn,  p.  1705. 

'  The  collection  of  the  arrears  of  this  duty  will  undoubtedly  create 
hardships  on  many  who  will  be  compelled  to  pay  three  or  four  years'  duty. 


246     THE  TAXATION  OF  LAND  VALUE 

and,  secondly,  the  operation  of  the  tax  has  been  tempora- 
rily suspended  by  reason  of  the  court  decisions.  The  fluc- 
tuation and  increase  in  amount  are  due  to  the  inclusion  of 
arrears  from  previous  years.  The  paltry  sums  yielded  by 
the  indirect  taxes,  namely,  the  value-increment  and  rever- 
sion duty,  are  accounted  for  by  the  fact  that  the  levy  of  the 
former  is  dependent  upon  the  number  of  transfers  of  prop- 
erty, of  the  latter  upon  the  determination  of  long-term 
leases.  The  transfer  of  certain  kinds  of  property  was  said 
to  have  been  interfered  with  during  the  stormy  sessions  of 
Parliament  and  even  after  the  enactment  of  the  Finance 
Bill.^  Moreover,  the  taxable  value  increment  accruing 
during  the  first  troublous  year  and  even  in  the  few  suc- 
ceeding years  could  be  but  sUght.  Indeed,  it  is  very  likely 
that  the  market  value  of  some  land  has  been  unfavorably 
affected  by  the  duties.  On  the  other  hand,  the  few  cases 
reported  as  liable  for  reversion  duty  during  the  first  year 
are  attributable,  according  to  the  Commissioners  of  Inland 
Revenue,  2  to  the  liberal  exemptions  and  to  the  ignorance 
and  misunderstanding  of  the  liabilities  under  the  Act. 
In  the  last  years  the  amount  of  reversion  duty  has  been 
insignificant  because  of  the  legal  controversies  still  sub 
judice. 

The  above  considerations  show  that  temporary  causes 
chiefly  have  tended  to  make  the  yield  of  the  new  duties 
inconsiderable.  Whether  the  anticipations  of  the  Chan- 
cellor of  the  Exchequer  who  saw  in  these  new  taxes  a  source 
of  an  expanding  revenue  for  the  needs  of  the  State  '  were 
well  founded,  it  is  too  early  to  predict.*   But  while  final 

*  Cf.  Solicitors'  Journal,  vol.  LVii,  p.  780.  That  this  was  not  true  of  the 
large  estates  will  be  shown  infra,  §  15.  It  is  necessary  to  point  out  that 
the  ordinary  transfer  tax  on  property  was  doubled  by  the  Finance  Act 
(1909-10),  §  73. 

*  Report  for  1911,  p.  164. 

»  Pari.  Debates  (1909),  vol.  iv,  pp.  537,  539;  vol.  ix,  p.  318. 

*  "  That  the  possibilities  of  the  tax  are  still  highly  regarded  is,  never- 
theless, evidenced  by  the  protests  made  by  the  local  authorities  against 
the  provision  of  the  Revenue  Bill  now  before  Parliament  by  which  half 


THE  ENGLISH  LANI>-VALUE  DUTIES         247 

judgment  concerning  the  fiscal  expediency  of  the  land- 
value  duties  for  imperial  purposes  must  be  withheld,  the 
possibilities  of  fiscal  reform  which  the  enactment  of  the  du- 
ties has  opened  up  must  also  be  taken  into  account.  The 
utility  of  the  valuation  itself  is  no  longer  questioned.  The 
chief  reasons  are:  ^  (1)  the  compulsory  acquisition  of  land 
by  local  authorities  will  henceforth  be  based  on  the  assessed 
value  of  the  land  instead  of  on  the  speculative  value  fixed 
by  the  owner;  (2)  it  will  prevent  the  undervaluation  of 
land  for  death  duty  purposes;  ^  (3)  the  valuation  will 
greatly  faciUtate  the  adoption  of  local  rating  on  land 
value,  for  which  bills  continue  to  be  introduced  in  the 
House  of  Commons.' 

§  15.  After  all,  however,  considering  the  primary  pur- 
pose of  the  land- value  duties,  the  question  of  fiscal  expe- 
diency must  give  way  to  the  question  of  the  social  and 
economic  effects.  As  we  reflect  upon  the  extravagant 
claims  of  the  adherents  and  the  vehemence  of  the  opposi- 
tion when  the  possible  effects  of  the  land  duties  were  de- 
bated in  Parliament,  we  may  wonder  at  the  apparently 
unchanged  conditions,  social  and  economic,  since  these 
duties  have  come  into  operation.   To  quote  for  illustra- 

the  proceeds  of  the  taxes  is  to  be  swept  into  the  exchequer  in  lieu  of 
the  value  of  the  outdoor  relief  saved  to  the  authorities  by  the  recent 
extension  of  the  operation  of  the  Old  Age  Pension  Act  to  paupers." 
(Financial  Review  of  Reviews,  April,  1911,  p.  27.)  In  explanation  of 
this  passage  it  is  necessary  to  note  the  provision  of  section  91  of  the 
Finance  Act,  1909-10,  for  an  equal  division  of  the  revenue  accruing 
from  the  land  duties  between  the  imperial  and  local  governments.  The 
Revenue  Bill  of  1911,  however,  repealed  the  provision,  so  that  the  total 
revenue  is  now  devoted  to  imperial  purposes. 

*  Cf.  Financial  Review  of  Reviews,  April,  1913,  p.  35. 

*  See  Speech  by  Lloyd  George  at  City  Liberal  Club  (February,  1912), 
p.  12. 

'  Even  in  1912  three  "local  rating  on  land  value"  bills  were  introduced 
in  the  House  of  Commons.  Bill  64  (Scotland)  passed  a  second  reading; 
Bill  25  was  withdrawn,  while  Bill  173  was  dropped  after  a  second  reading. 
Very  significant  is  the  provision  for  a  new  valuation  for  rating  purposes 
which  Lloyd  George  included  in  his  Budget  Proposals  of  1914.  Cf.  Pari. 
Debates  (1914),  vol.  lxii,  p.  478, 


248  THE  TAXATION  OF  LAND  VALUE 

tion  Mr.  Winston  Churchill's  hopeful  expectations:  "The 
effect  will  be,  as  we  believe,  to  bring  land  into  the  market 
and  thus  somewhat  cheapen  the  price  at  which  land  is 
obtainable  for  every  object,  public  and  private,  and  by  so 
doing,  we  shall  liberate  new  springs  of  enterprise  and  in- 
dustry, we  shall  stimulate  building,  relieve  overcrowding, 
and  promote  employment."  ^  The  failure  of  these  claims  to 
materialize  is  not  difficult  to  explain.  First,  the  taxes  are 
not  yet  in  full  operation.  Secondly,  the  tax  rates  are  too 
slight  to  be  burdensome;  that  is,  a  tax  of  one  fifth  of  one 
per  cent  on  undeveloped  land  will  scarcely  check  specula- 
tion and  lead  to  the  utilization  of  more  land.  Thirdly,  other 
social  forces  tend  to  counteract  the  influences  which  the 
duties  may  exert,  for  example,  the  increasing  population 
in  urban  communities.  Thus,  it  may  be  argued,  the  salu- 
tary effects  of  the  duties  have  not  yet  been  felt. 

On  the  other  hand,  facts  have  been  presented  to  show 
that  the  new  taxes  have  had  a  deleterious  influence  on  the 
building  trade.  That  there  was  a  depression  in  building 
operations  in  England  in  the  years  following  the  enact- 
ment of  the  duties  is  seen  from  the  following  data:  in 
1910-11,  only  ten  per  cent  of  the  number  of  small  houses 
of  £20  annual  value  and  below  were  erected,  that  had  been 
erected  in  each  year  from  1904  to  1906. '^  A  member  of  the 
Opposition  quoted  the  following  figures  to  show  the  injuri- 
ous effect  of  the  taxes  on  building  operations: '  In  1901, 

^  The  Budget,  the  Land,  and  the  People,  issued  by  the  Budget  League 
(1909),  p.  46. 

*  The  figures  quoted  by  Mr.  Peto  in  the  House  of  Commons  were: 
in  1904-06  (on  an  average)  107,021  small  buildings  had  been  built,  in 
1910-11  the  total  number  was  10,651.  Pari.  Debates  (1913),  vol.  l,  p.  208. 
Cf.  also  ibid.  (1914),  vol.  LViir,  p.  854. 

•  The  same  member,  Mr.  Royds,  caused  an  inquiry  to  be  made  on  his 
own  account,  and  in  reply  to  his  question,  "  Have  the  Budget  Land  Taxes 
affected  the  building  trade  in  your  district?  "  received  answers  as  follows: 
(1)  "The  provisional  valuation  scheme  has  destroyed  credit  and  fright- 
ened mortgagees.  ...  In  the  whole  of  this  city  I  do  not  think  there  are  a 
dozen  cottages  under  construction."  (2)  "...  the  values  of  the  official 
valuer  have  had  a  depressing  and  unnerving  influence  on  the  builder  and 


THE  ENGLISH  LANI>-VALUE  DUTIES        249 

in  the  forty  towns  investigated  there  were  65,000  uninhab- 
ited houses,  in  1911  the  number  had  decHned  to  47,740, 
and  in  1913  to  24,000.  In  reply  it  was  pointed  out  that  the 
high  cost  of  building  materials  and  of  labor  and  the  in- 
crease in  the  rate  of  interest  and  in  local  rates  were  respon- 
sible for  the  shortage  of  small  houses;  while  in  general  the 
conditions  in  the  building  trade  had  improved  since  the 
imposition  of  the  land-value  duties.  The  last  statement 
was  substantiated  by  the  decrease  in  unemployment  in  the 
trade  since  1909,  which  was  a  year  of  depression,  and  by 
the  advance  in  wages  in  the  building  trades  over  and  above 
that  in  general  wages.  ^  Whether,  as  some  claim,  the  law 
has  withdrawn  capital  from  the  building  trade,  ^  discour- 
aged building  operations  and  raised  rents,'  or  whether  the 
depression  was  the  result  of  the  uncertainties  attending 
the  valuation  and  the  interpretation  of  the  law  has  not 
been  proved.^  Another  effect  which  from  the  standpoint 
of  the  government  is  favorable  is  that  large  estates  are 
being  broken  up,  and  that  there  is  in  consequence  an 
increasing  number  of  small  owners  of  land.  This  is  gener- 
ally admitted  even  by  the  Opposition,^  but  the  result  of 

on  the  owners  of  property.  Values  of  twenty  per  cent  less  than  cost  are 
usual  from  the  value  here.  .  .  .  This  has  had  a  distressing  effect  upon  the 
investing  public,  who  for  some  years  have  shunned  property  and  have 
not  yet  recovered.  Its  effect  is  entirely  to  upset  all  confidence  in  the 
property  market."  Pari.  Debates  (1914),  vol.  lviii,  pp.  806-07. 

1  Ibid.  (1914),  vol.  Lviii,  pp.  824,  845-46.  The  percentages  of  un- 
employment were  given  as  follows:  1906,  7.2;  1907,  7.3;  1908,  11.5; 
1909,  11.7;  1910,  8.6;  1911,  6;  1912,  4.2;  1913,  3.8.  These  percentages, 
quoted  by  Lloyd  George,  were  declared  misleading,  because  the  member- 
ship of  the  building  trade  unions  had  decreased  since  1909. 

*  Ibid.  (1913),  vol.  L,  p.  1558. 
»  Ibid.,  p.  171. 

*  Cf.  ibid.,  vol.  ui,  p.  905.  The  testimony  of  the  members  of  Parlia- 
ment regarding  the  depression  in  the  building  trade,  was,  however,  not 
unanimous.  Thus  it  was  claimed  by  one  member  that  building  opera- 
tions in  towns  were  more  active  and  that  unemployment  in  that  industry 
was  less  than  for  many  preceding  years.   Ibid.,  vol.  l,  pp.  1551  ff. 

*  See  Speech  by  the  Earl  of  Portsmouth  in  the  House  of  Lords.  Pari. 
Debates  (Lords,  1913),  vol.  xiv,  p.  1067. 


250  THE  TAXATION  OF  LAND  VALUE 

the  abnormal  sale  of  estates  is  said  by  them  to  have  been 
that  it  has  put  the  tenant  farmer  in  an  unfortunate  posi- 
tion.^ It  should  be  mentioned  also  that  the  value  of 
land  has  tended  to  increase  in  spite  of  this  tendency  toward 
disintegration.* 

*  Pari.  Debates  (Commons,  1913),  vol.  LVm,  p.  812. 
«  Ibid.,  pp.  825-186. 


CHAPTER  VI 

BIUNICIPAL  TAXATION  IN  WESTERN  CANADA 

§  1.  Real  estate  is  the  prevailing  and  chief  source  of 
local  revenue  in  Canada.  The  cause  for  the  separation  of 
the  central,  provincial,  and  local  sources  of  public  revenue 
in  Canada  is  political  rather  than  economic.  But,  since 
the  Dominion  government  relies  for  its  revenue  chiefly 
upon  customs  and  excise  taxes,  and  the  provincial  govern- 
ments upon  corporation  and  succession  duties,  and  rail- 
way, income,  and  similar  taxes,  little  else  ^  remains  for  the 
local  authorities  to  tax  besides  property,  real  and  personal. 
And  though  the  personalty  tax,  now  generally  discredited 
in  Canada,^  is  being  superseded  by  the  business  or  other 
taxes,'  real  property  constitutes  the  main  source  of  muni- 
cipal income.  So  long  as  landed  property  continues  to  be 
the  main  source  of  wealth  in  the  community,  and  so  long 
as  the  principle  of  benefit,  the  principle  of  taxation  which 
Canadian  writers  accept  as  self-evident,*  continues  to  give 
satisfaction  to  the  ratepayers,  real  estate  will  bear  the 
heaviest  burden  of  taxation. 

*  Licenses,  franchises,  poll,  income,  and  business  taxes  are  other  taxes 
levied  in  the  Canadian  localities,  but  these  are  unimportant,  subsidiary 
sources  of  revenue. 

*  The  various  provincial  tax  commissions  were  invariably  in  favor  of 
its  abolition.  C/.  Report  of  the  Ontario  Assessment  Commission  (1902). 
Also  Sessional  Papers,  Ontario  (1893),  No.  73,  and  the  Report  of  the  Royal 
Commission  on  Taxation  in  British  Columbia  (1911). 

'  The  business  tax,  which  has  taken  the  place  of  the  personal  property 
tax  in  Ontario,  is  reported  as  working  well.  Cf.  The  Municipal  World, 
November,  1909,  pp.  272-73. 

*  For  example,  the  alderman  of  Westmount,  Quebec,  who  succeeded 
in  introducing  some  reforms  in  the  system  of  taxation  in  his  city  defines 
taxation  as  "  a  payment  by  the  individual  to  the  organized  community 
for  services  rendered  to  him  by  it."  Canadian  Municipal  Journal, 
June.  1914,  p.  230. 


262     THE  TAXATION  OF  LAND  VALUE 

That  the  Canadian  fiscal  system  should  have  developed 
along  lines  similar  to  the  English  system  is  readily  com- 
prehensible. Considering  the  differences  in  the  economic 
and  social  conditions  of  the  two  countries,  however,  it  is 
noteworthy  that  the  assessment  on  annual  or  rental  value, 
as  in  England,  was  prevalent  in  Canada  until  the  fifties. 
This  method  of  assessment,  which  distributes  unequally 
the  burden  of  taxation  by  exempting  unused  property  from 
taxation,  was  perpetuated  in  England  by  a  dominant  land- 
owning class.  In  new  and  democratic  communities,  how- 
ever, where  the  principle  of  equal  distribution  of  the  tax 
burden  tends  to  be  jealously  observed,  and  the  recipro- 
cal relation  between  services  of  the  government  and  the 
wealth  of  the  individual  is  accepted  as  an  article  of  faith,  ^ 
the  transition  to  assessment  on  capital  value  seems  inevit- 
able. In  Canada  the  first  departure  from  the  traditional 
system  is  seen  in  the  provision  of  the  tax  law  for  Upper 
Canada  in  the  fifties,  that  the  taxable  annual  value  should 
in  every  case  constitute  the  real  rack  rent,  and  if  the  rent 
be  less  than  six  per  cent  of  the  actual  value  of  the  land,  the 
assessed  rental  should  be  calculated  at  six  per  cent  of  the 
full  or  capital  value.^  Shortly  afterward  followed  the 
change  to  assessment  on  capital  value  in  Ontario  (1869).' 
And  now,  with  one  exception,*  rating  on  capital  value  has 
become  general  throughout  Canada. 

§  2.  More  recently  the  western  provinces  of  Canada 

have  departed  still  further  from  the  English  system  by 

^  The  fact  that  public  utilities  and  improvements  enhance  the  value 
of  the  vacant  as  well  as  of  the  improved  land  is  cited  again  and  again 
in  Canada  in  discussions  on  taxation.  Therefore,  also  "  special  assess- 
ment "  taxes  are  common  in  western  Canada. 

*  Full  value  is  the  amount  at  which  the  land  would  be  appraised  in 
payment  of  a  just  debt  from  a  solvent  debtor.  The  Consolidated  Statutes 
for  Upper  Canada,  22  Vic,  c.  55,   §  28;  16  Vic,  c  182,  §  12. 

»  32  Vic,  c.  36,  §  30;  see  also  Revised  Statutes  of  Ontario  (1877),  c. 
180,  §  23. 

*  The  city  of  Quebec  still  rates  on  the  annual  rental.  Cf.  Vineberg, 
Provincial  and  Local  Taxation  in  Canada,  in  Columbia  University  Studies 
(1912),  vol.  111.  p.  91. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    253 

exempting  improvements  from  the  real-estate  tax.  The 
tendency  is  even  to  remit  all  other  taxes  for  local  purposes, 
so  as  to  make  the  value  of  the  land  the  sole  source  of  local 
revenue.  The  causes  of  this  tendency  to  adopt  the  single 
tax  on  land  value  are  fiscal,  economic,  and  social.  So  great 
has  been  the  appreciation  in  the  value  of  the  land  in  the 
western  provinces,  that  the  owner  does  not  feel  the  burden 
of  the  taxes.  As  will  be  shown  later,  ^  the  rise  in  land  value 
has  kept  pace  with  the  increased  budgets  without  necessi- 
tating any  considerable  increase  in  the  tax  rate.  In  the 
eastern  provinces,  on  the  other  hand,  where  the  value  of 
the  improvements  nearly  equals  or  exceeds  the  value  of  the 
land,  and  where  the  value  of  the  land  is  more  constant,^ 
the  remission  of  other  taxes  and  the  exemption  of  improve- 
ments would  necessitate  a  higher  tax  rate  and  the  burden 
on  the  land  would  be  increased. 

Attention  should  be  called  to  the  similarity  between 
western  Canada  and  the  Australasian  colonies  both  in 
respect  to  the  underlying  economic  and  social  conditions 
and  in  respect  to  the  legislation  resulting  from  those  con- 
ditions. Western  Canada,  comprising  British  Coliunbia, 
Manitoba,  Alberta,  and  Saskatchewan  (omitting  the 
Yukon  and  the  Northwest  Territories),^  reminds  one  of 
the  vastness  and  wildness  of  their  sister  colonies  in  the 
Eastern  Hemisphere.  Like  Australasia,  western  Canada 
is  the  hope  of  the  venturesome  pioneer;  both  are  very 
sparsely  populated.  Settled  by  squatters,  mainly  specu- 
lators, the  western  provinces  display  the  same  eagerness 
as  Australasia  to  attract  immigrants  and  to  encourage  the 
employment  of  labor  and  capital.    Moreover,  the  same 

^  See  infra,  §  8. 

*  Cf.  Canadian  Municipal  Journal,  December,  1912,  p.  490. 

'  For  purposes  of  comparison  Canada  must  be  dismembered,  for  the 
newly  opened  western  country  is  in  many  respects  as  different  from 
eastern  Canada,  as  Australia,  for  example,  from  its  mother  country. 
The  Yukon  and  Northwest  Territories  are  scarcely  organized  and  popu- 
lated. There  are  only  about  27,000  people  in  about  1,500,000  square 
miles  of  territory  (1912). 


254  THE  TAXATION  OF  LAND  VALUE 

ideals,  such  as  equality  of  opportunity,  the  same  resent- 
ment and  intolerance  toward  special  privilege,  character- 
ize both  countries.  The  greatest  boon  to  the  inhabitants 
is,  of  course,  the  injQux  of  immigration,  and  as  prosperous 
industrial  conditions  and  business  opportunities  are  the 
chief  incentive  to  settlement,  it  behooves  even  the  specu- 
lators to  promote  improvements  and  business  enterprises. 
The  land  problems  in  the  two  countries  differ  only  in 
degree.  The  following  facts  throw  light  on  the  condition 
of  land  tenure  in  the  western  provinces.  Western  Canada, 
i.e.,  the  three  prairie  provinces,  was  acquired  by  the 
Dominion  by  purchase  from  the  Hudson's  Bay  Company.^ 
But  the  federal  government  disposed  of  part  of  these  lands 
by  liberal  grants  to  railway  companies  and  by  sale  to  land 
speculators.  The  original  grant  to  the  Canadian  Pacific 
Railway  Company  alone  was  27,000,000  acres  plus  17,000,- 
000  acres  from  the  absorbed  roads.*  At  present  it  owns 
about  200,000  acres  in  Manitoba,  excluding  70,000  acres 
owned  by  the  Canadian  North-West  Land  Company,  a 
child  of  the  Canadian  Pacific.  Li  Alberta  and  Saskatche- 
wan, 7,000,000  acres  belong  to  the  same  company;  while 
in  British  Columbia  it  owns  about  4,000,000  acres  more. 
The  Esquimalt  and  Nanaimo  Railway  Company  owns 
nearly  1,250,000  acres  on  Vancouver  Island  alone.  Besides, 
there  are  fifteen  incorporated  land  companies  owning  vast 
estates  in  British  Columbia.'  Considering,  however,  that 
the  area  of  the  four  provinces  contains  more  than  700,000,- 
000  acres,  the  crown  lands  have  by  no  means  all  been  dis- 
posed of.   Nevertheless,  although  the  Dominion  lands  are 

1  Cf.  Rupert's  Land  Act  (1868),  31-32  Vic,  c.  cv.  The  Hudson's  Bay 
Company,  by  the  charter  from  King  Charles  II,  claimed  and  held  pos- 
session of  this  whole  western  territory  until  after  the  Confederation  of 
1867.  At  about  that  time  the  land  was  ceded  to  the  Dominion  for  a  cash 
bounty  and  certain  fur-trading  privileges,  the  company  retaining  one- 
twentieth  of  the  land  as  well.  Cf.  An  Official  Hand  Book  of  Alberta  (1907), 
p.  6;  also  the  London  Economist,  March  16,  1912,  p.  573. 

«  Ibid. 

»  Agriculture  in  British  Columbia,  Official  Bulletin  10  (1912),  p.  00.     , 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    255 


still  extensive,  they  are  not  the  most  desirable  lands,  for 
the  territory  near  and  along  the  main  railway  lines  is  in 
the  hands  of  the  Canadian  Pacific,  while  the  Hudson's  Bay 
Company's  lands  comprise  one-twentieth  part  of  all  the 
fertile  belt.^ 

There  is  still  much  free  land  in  Alberta  and  Saskatche- 
wan, of  whose  area  scarcely  half  has  yet  been  surveyed, 
while  in  British  Columbia  the  Dominion  Government  owns 
3,500,000  acres  in  the  Peace  River  country  and  a  large 
area  in  the  River  Belt.''  There  is  less  free  arable  land 
in  Manitoba,  except  in  the  north  and  northwest.'  The 
Dominion  lands  are  open  for  entry  to  homesteaders.* 
The  policy  of  the  Canadan  Pacific  Railway  Company,  as  of 
most  of  the  land  companies,  has  been  to  sell  its  holdings  at 

»  An  Official  Hand  Book  of  Alberta  (1907),  p.  56.  The  London  Econo- 
mist, March  16,  1912,  p.  573. 

*  The  number  of  acres  of  Dominion  lands  surveyed  to  January  1, 
1913,  was  154,552,067  acres,  of  which  only  30,000,000  have  yet  been  dis- 
posed of.  The  Canada  Year  Book  (1912),  p.  432.  Cf.  also  Lawson,  Canada 
and  the  Empire,  pp.  202-03.  Bureau  of  Provincial  Information,  OflBcial 
Bulletin  10  (B.C.,  1912),  p.  95. 

'  Cf.  Canada  Hand  Book  (1915),  p.  67.  The  following  data  present 
concisely  the  conditions  of  land  tenure  and  of  cultivation  in  the  four 
western  provinces  in  1901  and  1911  (Canada  Year  Book  (1914),  p.  170):  — 


Total  area 
{acres) 

Occupied  lands 

Provineet 

Area 
(acres) 

Improved 
{acres) 

Unimproved 
(acres) 

British  Columbia: 

1901 

236,922,177 
226,186,370 

41,169,098 
41,169,098 

161,872,000 
161,872,000 

155,764,480 
155,764,100 

1,497,419 
2,540,011 

8,843,347 
12,228,233 

2,735,630 
17,751,899 

3,833,434 
28.642.985 

473,683 
477,590 

3,995,305 
6,746,169 

474,694 
4,351,698 

1,122,602 
11,871,907 

1,023,736 

1911 

2,062,421 

Manitoba: 

1901 

4,848,042 

1911 

5,482,064 

Alberta: 

1901 

2,260,936 

1911 

13,400,201 

Saskatchewan: 
1901 

2,710,823 

1911 

16,771,078 

*  The  applicant  for  a  homestead  of  160  acres  pays  a  fee  of  $10.  The 
conditions  of  entry  are:  (1)  six  months'  residence  in  every  year  on  the 
land;  (2)  the  cultivation  of  at  least  fifteen  acres  for  three  years. 


256 


THE  TAXATION  OF  LAND  VALUE 


reasonable  prices.  It  is  of  course  in  the  interest  of  these 
companies  to  promote  immigration  and  settlement.  At 
the  outset  the  Canadian  Pacific  sold  land  at  $2.50  per  acre 
with  a  rebate  of  half  the  amount  for  every  acre  brought 
under  cultivation.  At  present,  the  average  selling  price 
for  good  land  is  $10  per  acre  without  rebate  for  improve- 
ment, while  the  irrigated  lands  bring  prices  of  $30  to  $55 
per  acre.  ^  Within  recent  years  the  influx  of  population  has 
been  very  rapid  and  the  investment  of  foreign  capital  in 
land,  chiefly  by  English  and  American  capitalists,  has 
increased  enormously.  ^  The  result  has  been  a  great  appre- 
ciation in  the  value  of  the  land,  mainly  an  inflated  valua- 
tion.' 

Not  only  has  the  increased  rural  population  in  the  west- 

^  The  following  data  show  the  enormous  profits  reaped  by  the  land 
companies  from  their  land  sales  (Lawson,  op.  cit.,  pp.  97,  210) :  — 

CANADIAN  LAND  SALES  IN  THE  NORTHWEST 


1893-1908 

1909-1910 

Acres 

Value 

Acres 

Valxte 

Canadian    Pacific    Railway 

8,453,730 
1,614,153 
1,171,400 

1,240.087 

1,153.999 

1.022.915 

213,206 

$35,062,944 
9,484,943 
6.638,511 

4.454,800 

4,006,301 

2,017,224 

990,963 

655,585 
104,382 
285,428 

18,323 

14,501 

106,000 

571 

$10,473,425 
1,297,454 
2,783,010 

182.926 

126,950 

Hudson's  Bay  Company 

Canadian  Northern  Company 
Calgary  and  Edmonton  Corn- 

Manitoba  South  Western 

Q'Appelle,    Long  Lake,    and 
Saskatchewan  Company. . . 
Great  Northern  Central 

964.600 
6  863 

Total 

14,769,490 

$62,655,686 

1,184.790 

$15,835,228 

*  "The  speculation  in  city  properties  has  largely  been  in  the  hands 
of  foreign  investors  and  a  class  of  semi-professional  real  estate  dealers 
resident  here."  London  Economist,  February  1,  1913,  p.  221. 

'  Farm  land  in  Manitoba  is  said  to  have  increased  ten  per  cent  in  price 
within  the  last  five  years,  while  the  average  increase  in  Saskatchewan 
and  Alberta  has  been  fully  thirty  per  cent.  Ibid.,  March  9, 1912,  p.  632. 
Near  cities,  like  Saskatoon  and  Regina,  Sask.,  unimproved  land  brings 
$40  to  $50  per  acre,  whereas  elsewhere  it  brings  only  $10  per  acre.  Ibid., 
March  SO,  1012,  p.  686. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    257 

ern  provinces  caused  an  appreciation  in  the  value  of  farm 
land,  but  the  rapid  growth  of  the  incorporated  local  bodies 
has  given  rise  to  "  booms  "  in  town  land.  It  has  been  esti- 
mated that  of  the  1,244,597  immigrants  who  entered  the 
western  provinces  from  1900  to  1909, 31.4  per  cent  were  rep- 
resented in  homestead  entries.  Allowing  for  the  immi- 
grants who  became  farm  laborers  and  those  who  bought 
land  from  the  land  and  railway  companies,  a  considerable 
proportion  must  have  become  residents  of  the  towns.  ^  A 
few  examples  will  make  this  evident.  From  1901  to  1911, 
the  urban  population  of  Alberta  increased  from  20,623  to 
141,937  (588  per  cent);  that  of  Manitoba  from  70,473  to 
200,365  (184  per  cent);  that  of  British  Columbia  from 
90,179  to  203,684  (126  per  cent);  and  that  of  Saskatche- 
wan from  17,550  to  131,365  (648  per  cent).^  The  follow- 
ing table  shows  the  increase  in  the  niunber  of  munici- 
paHties  in  Saskatchewan:' 

1905  1913 


Rural  municipalities 

2 

290 

Villages 

6S 

255 

Towns 

16 

72 

Cities 

S 

5 

This  development,  then,  has  caused  a  prodigious  value 
increment  to  accrue  from  realty  transactions.  And  while 
speculators  are  seeking  to  attract  capital  to  this  new  coun- 
try in  order  to  reap  further  profit  from  the  increment  in  the 
value  of  the  land,  the  taxpayer  in  the  municipality  feels 
himself  aggrieved  because  the  property  of  the  absentee, 
held  for  speculation  in  an  unimproved  condition,  rises  in 
value  as  a  result  of  the  community's  expenditure  for  im- 
provements. In  further  explanation  of  the  attitude  of  the 

^  "  The  Immigration  Situation  in  Canada,"  in  Report  of  the  Immigror 
tion  Commission,  U.S.  Senate  Doc.  No.  469  (1910),  p.  22. 

»  Canada  Year  Book  (1912),  pp.  14-19. 

*  Canadian  Municipal  Journal,  October,  1913,  p.  412;  cf.  also  The 
Public  Service  Monthly  (Sask.),  vol.  ii,  September,  1913,  p.  10;  December, 
1914,  p.  126. 


258  THE  TAXATION  OF  LAND  VALUE 

settlers  toward  this  class  of  landowners,  we  may  note  that 
in  many  towns  the  Hudson's  Bay  Company  and  the  railway 
companies  hold  large  tracts  unimproved.^  To  hit  these 
non-residents  and  to  attract  capital,  such  is  the  end  toward 
which  the  system  of  taxing  the  land  irrespective  of  im- 
provements is  chiefly  directed.  When  we  add  the  fiscal 
factors,  the  elasticity  and  suflBciency  of  the  tax,  and  the 
ethical  consideration,  to  distribute  the  burden  equally  on 
those  who  can  best  bear  it,  we  have  the  motives  which 
have  called  the  tax  on  land  value  into  being. 

§  3.  The  history  of  the  development  of  the  system  of 
exempting  improvements  from  taxation  bears  out  the  con- 
elusion  that  its  adoption  was  prompted  by  fiscal  and  social 
considerations.  The  earliest  attempt  to  discourage  landed 
monopoly  through  taxation  was  the  levy  of  the  wild-land 
tax  in  British  Columbia.  This  tax,  first  imposed  in  1873 
for  provincial  purposes,  applied  only  to  undeveloped  land 
in  unorganized  communities.^  The  rate  of  tax  was  one 
per  cent  of  the  value  per  acre  on  all  land  except  such  as 
was  improved  as  follows: ' 

(1)  Land  upon  which  $1  per  acre  was  expended  annually, 
provided  such  land  did  not  exceed  the  value  of  $20  per 
acre. 

(2)  Land  upon  which  permanent  improvements  *  to 
the  amount  in  value  of  20  per  cent  of  the  assessed  value 
of  the  land  had  been  made. 

(3)  Land,  not  worth  $5  per  acre,  upon  which  five  head 
of  cattle  per  100  acres  were  pastured;   or   land,  when 

^  Moreover,  the  lands  of  the  Canadian  Pacific  Railway  Company  are 
exempt  from  taxation. 

*  British  Columbia,  36  Vic,  No.  11.  Having  relegated  the  levy  of 
property  taxes  to  the  local  governments,  the  provincial  government 
reserved  the  right  to  tax  property  only  in  the  unorganized  districts. 
Cf.  ibid.,  §  1  (6). 

*  Other  exemptions,  such  as  are  usual  in  taxation,  need  no  mention 
here. 

*  §  2  defines  permanent  improvements  as  any  building,  fence,  prospect- 
ing mining  work,  or  reclamation  of  the  land. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    259 

valued  in  excess  of  $5  per  acre,  upon  which  fifteen  head 
of  sheep  per  100  acres  were  pastured. 

(4)  Land  leased  for  timber  cutting,  or  for  agricultural 
purposes. 

In  1876  this  Land  Tax  Act  was  repealed  and  replaced 
by  a  property  and  income  "Assessment  Act"  which,  be- 
sides a  tax  of  one-third  of  one  per  cent  on  the  capital  value 
of  real  estate,  provided  for  an  annual  tax  of  five  cents  per 
acre  upon  all  unoccupied  land  in  unorganized  districts.^ 
This  provision,  though  still  discriminatory,  made  the  bur- 
den on  unimproved  land  a  nominal  one  and  in  many  cases 
represented  a  reduction  in  burden,  since  the  tax  was  now 
based,  not  on  land  value,  but  on  acreage.  ^  Since  1900, 
the  rate  of  the  provincial  tax  on  realty  has  fluctuated 
from  one-half  to  four-fifths  of  one  per  cent;  during  the 
same  period,  the  rate  on  the  value  of  wild  land  has  in- 
creased from  three  to  five  per  cent.'  During  this  time  the 
meaning  of  vnld  land  has  become  more  clearly  defined,  and 
since  1905  *  has  become  differentiated  for  taxing  purposes 
from  timber  and  coal  lands.  Wild  land  is  such  as  has  not 
existing  upon  it  improvements  to  the  value  of  $2.50  per 
acre,  in  addition  to  the  cash  value  of  the  land  itself,  in 
territory  west  of  the  Cascade  Range  of  mountains;  and 
$1.25  in  territory  east  of  the  Cascade.  Temporary  struc- 
tures including  machinery  and  other  temporary  equip- 
ment do  not  constitute  improvements.    The  following 

»  British  Columbia,  39  Vic,  No.  8,  §§1,  9,  10.  "Unoccupied  land 
shall  mean  land  on  which  there  shall  not  be  existing  improvements  to 
the  amount  of  $5  per  acre  on  each  parcel  of  land."  In  1877  (40  Vic, 
No.  10),  this  provision  was  repealed  and  $2.50  was  substituted  instead 
of  $5. 

'  The  owner  of  valuable  unimproved  land  was  now  liable  to  the  same 
slight  charge  as  the  owner  of  the  most  worthless  property, 

»  British  Columbia.  64  Vic,  c  38,  §  4;  3-4  Edw.  VII.  c.  53.  §  5;  5  Edw. 
VII.  c  50,  §  15.  A  reduction  in  case  of  the  realty  tax  of  one-fifth  of  one 
per  cent,  in  the  case  of  the  wild-land  tax  of  one-half  of  one  per  cent,  is 
allowed  if  the  tax  is  paid  before  a  specified  time. 

*  British  Columbia.  6  Edw.  VII,  c.  50.  §  16. 


«60  THE  TAXATION  OF  LAND  VALUE 

rates  of  tax  on  the  different  classes  of  land  are  in  force  at 
present:^ 

(1)  On  real  estate  (improved  land),  ^  of  1  per  cent. 

(2)  On  wild  land,  4  per  cent. 

(3)  On  timber  land,^  2  per  cent. 

(4)  On  coal  land,  class  A  (being  worked),  1  per  cent. 

(5)  On  coal  land,  class  B  (being  unworked),  2  per  cent. 

(6)  On  unworked  Crown-granted  mineral  claims,  25 
cents  per  acre. 

This  wild-land  tax,  which  has  persisted  since  1873,  and 
which  is  clearly  intended  to  discriminate  against  the  holder 
of  unimproved  land,  was  until  1914  levied  for  provincial 
purposes  ^  in  British  Columbia  only.  The  proceeds  are 
devoted  to  local  improvements.    In  1914  a  wild-land  tax 

1  Revised  Statutes  of  British  Columbia,  2  Geo.  V,  c.  222,  §  9.  The 
following  statement  of  the  annual  receipts  collected  from  the  wild-land 
tax  by  the  provincial  government  shows  the  increase  in  yield,  due  both 
to  the  appreciated  value  of  the  land  and  to  the  increase  in  rate  of  tax:  — 

1906: 

1873 $950.79                            Wild  land $73,456.41 

1878 9,530.93                            Coal  land  A 1,434.40 

1883 6,162.92                            Coal  land  B 20,038.62 

1893 13,832.00                          Timber  land 38,160.93 

i9oo:::::::::::  Ktsi*  Total $133,080.36 

1903 71,340.60  1Q07. 

Ifl0« 101,607.89                           wild  land $91,098.34 

Coal  land  A 2,463.00 

Coal  land  B 21,686.00 

Timber  land 46,326.97 

Total $161,423.31 

1011  —  Total $316,130.83 

(Report  of  Royal  Commission  on  Taxation  (British  Columhid),  1911,  p. 
B  26;  Papers  Relative  to  the  Working  of  Taxation  of  the  Unimproved  Value 
of  Land  in  Canada  (Cd,  3740),  1907,  pp.  9-10.) 

*  "  A  royalty  is  reserved  to  the  Crown  on  all  timber  cut  from  Crown 
lands,  from  railway  subsidy  lands,  and  from  lands  held  under  lease  or 
license  from  the  Crown,"  etc.  Where  the  timber  is  manufactured  or  used 
in  the  province  a  rebate  is  allowed  in  case  of  the  timber  tax.  Year  Book 
of  British  Columbia  (1911),  p.  283, 

*  In  Alberta  there  is  a  provincial  tax  on  land  levied  at  a  flat  rate  per 
acre,  not  on  the  capital  value  of  the  land.  Likewise,  in  Saskatchewan, 
the  provincial  land  tax  is  now  only  one  cent  per  acre.  Cf.  The  Public  Service 
Monthly,  Legislative  Supplement  to  the  February  Number  (1913),  p.  12; 
Official  Hand  Book  of  the  Dominion  of  Canada  (1897),  p.  69. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   261 

of  one  per  cent  was  adopted  in  Alberta.^  As  in  British 
Columbia  this  charge  falls  on  land  outside  the  boundaries 
of  an  incorporated  city,  town,  or  village. 

The  latter  province,  it  is  significant,  outdid  her  sister 
province  to  the  west  by  the  institution,  in  1913,  of  a  tax 
on  the  unearned  increment  of  land.^  This  tax  applies  to 
land  transfers  in  incorporated  as  well  as  in  the  unincor- 
porated districts  of  Alberta,  and  the  proceeds  are  to  be 
devoted  to  provincial  purposes.  The  rate  of  tax  is  five 
per  cent  of  the  value  increment,  which  is  the  excess  of  the 
selling  price  at  the  time  of  transfer  over  the  assessed  value 
in  1913.^  The  tax  is  not  collected  at  the  transfer  of  land 
from  the  Crown  nor  on  the  death  of  the  owner;  while  agri- 
cultural land,  of  which  at  least  ten  per  cent  has  been  under 
cultivation  during  twelve  months  preceding  the  transfer, 
is  also  exempt.* 

§  4.  The  taxation  of  real  property  within  the  incorpo- 
rated local  bodies  was  from  the  first  relegated  to  them  by 
the  provincial  governments  of  western  Canada.  In  British 
Columbia,  the  councils  of  the  local  bodies  were  already  in 
the  nineties  authorized  to  discriminate  between  land  and 
improvements  and  to  tax  the  latter  at  a  lower  rate.  Thus, 
as  early  as  1891,  the  option  of  rating  improvements  at  a 
lower  value  than  land  was  extended  to  the  municipali- 
ties of  British  Columbia.  According  to  this  provision  it 
was  possible  to  exempt  improvements  altogether.^  The 
following  year  the  exemption  of  at  least  fifty  per  cent  of 
the  value  of  improvements  was  made  mandatory.^   The 

»  Alberta  (1914),  c.  8.  »  Ibid.  (1913),  c.  10. 

•  In  case  of  land  not  within  any  incorporated  municipality,  the  original 
site  value  is  deemed  to  be  $15  per  acre,  imless  the  owner  within  a  year 
from  the  passing  of  the  Act  can  prove  that  the  land  had  a  higher  value. 
Cf.  ibid..  §  4. 

•  When  the  area  of  imsubdivided  land,  however,  exceeds  640  acres, 
the  excess  over  640  acres  is  subject  to  increment  tax,  but  only  to  the 
extent  of  the  excess  value  beyond  the  sum  of  $50  per  acre  of  the  unim- 
proved value  of  the  land. 

6  British  Columbia,  54  Vic,  No.  29,  §  132;  59  Vic,  c.  37,  §  136. 

•  Ibid..  65  Vic,  c  33,  §  148. 


862  THE  TAXATION  OF  LAND  VALUE 

municipalities  were  also  empowered  to  levy  a  wild-land 
tax  at  a  rate  not  to  exceed  four  per  cent  of  the  assessed 
value  of  such  land  situated  within  the  boundaries  of  the 
municipalities.^  In  1910,  out  of  fifty-one  municipalities, 
only  sixteen  levied  a  wild-land  tax.  The  explanation  given 
for  this  small  number  that  have  adopted  the  tax  is  that, 
when  assessed  as  wild  land,  the  value  of  the  land  is  less  than 
as  building  land;  ^  therefore,  in  municipalities  where  the 
vacant  land  has  been  surveyed,  subdivided  into  small  lots 
and  assessed  as  building  land,  the  tax  on  real  property  is 
more  productive  than  the  wild-land  tax  would  be.'  Only 
where  the  land  is  not  ripe  for  building  purposes  does  the 
wild-land  tax  yield  more  revenue.  This  conclusion  is  con- 
firmed by  the  fact  that  only  three  of  the  sixteen  municipal- 
ities which  in  1910  levied  the  wild-land  tax  had  more  than 
1000  ratepayers.  Besides  the  wild-land  tax,  eleven  of  these 
sixteen  municipal  bodies  also  exempted  all  improvements 
from  taxation,  and  four  more  exempted  fifty  or  more 
per  cent  of  the  value  of  improvements.^  Altogether,  in 
1914,  out  of  the  thirty- three  cities  in  British  Columbia, 
fifteen  taxed  improvements  to  fifty  per  cent  of  their  value; 
fifteen  exempted  them  entirely;  while  three  taxed  them  at 
thirty-three  and  one-third,  thirty,  and  twenty-five  per 
cent  respectively.  Out  of  the  twenty-eight  district  commu- 
nities, twenty-four  exempted  improvements  altogether.^ 

In  the  Northwest  Territories,  of  which  Alberta  and 
Saskatchewan  were  a  part  until  1905,  a  similar  enactment, 

*  The  rate  on  real  property  was  not  to  exceed  one  and  one-half  per 
cent,  not  including  special  and  school  rates;  the  rate  on  wild  land  was 
in  1896  not  to  exceed  two  and  one-half  per  cent.   B.C.  59  Vic,  c.  37. 

*  In  a  municipality,  the  land  nearer  the  center,  or  the  business  section, 
has  a  higher  value  than  in  the  outlying  districts.  Until  the  place  is  platted 
and  laid  out  in  lots,  one  acre  of  land  is  valued  with  every  other  acre  as 
agricultural  land. 

*  Papers  Relative  to  the  Working  of  the  Land  Taxes  in  Canada  (Cd.  3740), 
1907,  pp.  8-11. 

*  Year  Book  of  British  Columbia  (1911),  pp.  275-76. 

*  Haig,  Exemption  of  Improvements  from  Taxation  in  Canada  and  the 
United  States,  p.  262. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   263 

in  1894,  empowered  the  councils  of  the  municipalities  to 
exempt  all  improvements  from  taxation,  provided  such 
exemption  should  not  occasion  a  higher  rate  of  tax  than 
four  per  cent  for  all  local  purposes,  including  the  general, 
school,  special  and  debenture  rates.  For  the  adoption  of 
this  provision  a  majority  vote  of  two-thirds  of  the  mem- 
bers of  the  municipal  council,  or  a  petition  of  at  least  one- 
half  of  the  resident  ratepayers,  was  required.  In  case  a 
petition  shall  have  been  presented  for  two  years  in  succes- 
sion, the  new  system  of  rating  becomes  law  permanently; 
rescission,  however,  is  possible,  if  the  same  procedure  of 
voting,  or  of  petition,  is  followed  as  for  adoption.^  The 
option  of  rating  on  land  value  continued  after  the  incorpora- 
tion of  Alberta  and  Saskatchewan:  Indeed,  under  the  Village 
Act  of  the  latter  province  a  Single  Tax  may  even  be  raised 
on  land  value.  ^  For  the  institution  of  the  Single  Tax  for 
municipal  purposes,  it  was  required  that  a  petition  signed 
by  at  least  two-thirds  of  all  the  ratepayers  be  submitted 
to  the  commissioner.  The  maximum  rate  was  fixed  at  two 
per  cent  in  1906,  but  was  changed  to  two  and  one-half  per 
cent  in  1908.'  Under  the  city  and  town  Acts,*  improve- 
ments were  required  to  be  assessed  at  sixty  per  cent  of 
their  actual  value;  the  rate  on  real  property  on  this  basis 
was  not  to  exceed  one  per  cent  of  the  assessed  value.  The 
development  of  the  movement  to  exempt  improvements 
reached  its  final  stage  in  the  Rural  Municipalities  Act  of 
1912-13,  in  the  provision  that  "land  shall  be  assessed  at 
its  actual  cash  value  exclusive  of  any  increase  in  such  value 
caused  by  the  erection  of  any  buildings  {hereon^  or  by  any 
other  expenditure  of  labor  or  capital"  ^ 

The  present  status  of  the  legislation  in  Saskatchewan 
with  reference  to  land- value  taxation  is  as  follows :  In  cities, 

*  Ordinances  of  Northwest  Territories  No.  3  of  1894,  Pt.  rv,  §  9. 

*  Saskatchewan  (1906),  c.  35,  §  40. 

»  Ibid.  (1906),  c.  35,  §  40;  (1908),  c.  18,  §  181. 

*  Ibid.  (1908),  c.  16,  §  310;  c.  17,  §  302. 

»  Ibid.  (1912-13),  c.  30,  §  23.   (Italics  mine.) 


«M  THE  TAXATION  OF  LAND  VALUE 

towns  and  villages  improvements  shall  not  be  taxed  to 
more  than  sixty  per  cent  of  their  value.  Since  1911  cities 
and  towns  have  the  option  of  exempting  a  greater  value  of 
the  improvements  than  forty  per  cent,  provided  that  the 
rate  of  reduction  shall  not  exceed  fifteen  per  cent  in  any  one 
year.^  This  means  that  any  municipality  which  had 
availed  itself  of  this  provision  in  1911  could  exempt  im- 
provements to  one  hundred  per  cent  by  1915.  In  villages 
the  option  of  exempting  improvements  still  exists;  while 
in  the  rural  municipalities  total  exemption  is  obligatory. 
On  rural  land,  moreover,  a  surtax  is  charged  for  local  pur- 
poses. The  rate  is  six  and  one-fourth  cents  per  acre  and  the 
land  subject  to  the  surtax  is  as  follows :  ^ 

(1)  Land  not  exceeding  320  acres  owned  by  a  non-resi- 
dent and  of  which  less  than  one-fourth  is  improved. 

(2)  Land  from  320  to  640  acres,  less  than  one-fourth 
of  which  is  under  cultivation. 

(3)  Land  from  640  to  1280  acres,  less  than  one-half  of 
which  is  under  cultivation. 

(4)  Land  from  1280  to  1920  acres,  less  than  one-half  of 
which  is  under  cultivation. 

(5)  Land  of  any  owner  or  occupant  exceeding  1920  acres. 
The  subjoined  data  show  how  the  local  bodies  had 

responded,  by  1914,  to  the  permission  to  exempt  improve- 
ments: (1)  The  cities  had  all  taken  advantage  of  the  priv- 
ilege. Moose  Jaw  in  1914  taxed  improvements  to  forty- 
five  per  cent,  North  Battleford  and  Weybum  to  thirty  per 
cent,  Regina  to  twenty-five  per  cent.  Prince  Albert  and 
Swift  Current  to  fifteen  per  cent.  (2)  Of  fifty-five  towns, 
forty-two  assessed  improvements  at  sixty  per  cent,  the 
others  at  less  than  sixty  per  cent,  two  taxing  improvements 
at  twenty-five  per  cent.  (3)  About  one-fourth  of  the  246 
villages  exempted  all  improvements,  the  others  taxing 

1  Saskatchewan  (1910-11),  c.  18,  §  15;  c.  19,  §  17. 

*  Ibid.  (1912-13),  c.  81,  §  4.  The  discrimination  against  absentee 
holdings  is  here  very  apparent.  An  additional  burden  on  the  non-resi- 
dent owner  is  the  hail  insurance  tax.  Cf.  Haig,  op.  cit.,  p.  84. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   2G5 

sixty  per  cent.  (4)  Improvements  were  exempted  alto- 
gether in  the  rural  and  local  improvement  districts  in 
accordance  with  the  law.^ 

In  Alberta,  also,  from  an  optional  levy  in  towns  and  vil- 
lages, the  system  of  land-value  taxation  progressed,  until 
in  1912  the  exemption  of  improvements  was  made  com- 
pulsory throughout  the  province,  except  for  the  cities 
incorporated  under  special  charters.^  Of  the  six  cities,  Ed- 
monton, Medicine  Hat,  and  Red  Deer  exempt  all  improve- 
ments, Calgary  seventy-five  per  cent,  Lethbridge  sixty-six 
and  two-thirds  per  cent,  and  Wetaskiwin  twenty  per  cent.' 

The  government  of  Manitoba  has  not  gone  so  far  in  her 
legislation  as  to  exempt  improvements  from  taxation  in 
the  municipalities.  Nevertheless,  the  same  tendency  is  at 
work.  For  example,  the  "Municipal  Assessment  Act" 
provides  for  the  assessment  of  all  land  in  rural  municipali- 
ties, improved  for  farming  or  gardening  purposes,  on  its 
unimproved  value.  Thus  buildings  and  residences  on  farm 
land  are  exempt;  while  improvements  on  land  used  for 
other  purposes  are  taxable.  Where  lands  are  improved  for 
the  purpose  of  a  local  industry  other  than  farming  or  stock 
ranching,  the  improvements  may  be  assessed  at  not  less 
than  one-half  of  the  actual  value,  if  the  council  so  direct.* 
Winnipeg  under  a  special  charter  taxes  improvements  at 
sixty-six  and  two-thirds  per  cent.  The  other  three  cities  in 
Manitoba  undervalue  improvements  although  illegally.^ 

In  all  four  provinces,  therefore,  the  taxation  of  land 
value  has  received  attention,  and  its  introduction  for  local 
purposes  has  been  furthered  by  provincial  enactment. 
The  system  has  progressed  farthest  in  the  more  recently 
incorporated  provinces,  Alberta  and  Saskatchewan,  where 
the  exemption  of  improvements  is  more  or  less  obligatory. 

1  Haig,  op.  cit.,  p.  262, 

»  Alberta  (1906),  c.  63,  Pt.  xxxi;  (1911-12),  c.  8,  §  252;  c.  2,  §  267. 

»  Haig,  op.  cit.,  p.  262. 

*  Manitoba,  Revised  Statutes  (1902),  c.  117,  §  28. 

•  Cf.  Haig,  op.  cit.,  pp.  19-20. 


266  THE  TAXATION  OF  LAND  VALUE 

In  British  Columbia  the  total  exemption  of  improvements 
is  optional,  but  the  exemption  of  improvements  to  fifty 
per  cent  of  their  value  is  mandatory.  The  abolition  of  all 
other  taxes  than  that  on  land  value  is  optional,  with  certain 
restrictions,  in  three  of  the  provinces;  in  Manitoba,  how- 
ever, no  provision  to  that  effect  has  been  enacted. 

§  5.  In  the  legislation  reviewed  in  the  preceding  section, 
the  beginning  as  well  as  the  development  of  the  movement 
toward  the  single  tax  for  local  purposes  in  western  Canada 
is  evident.  There  seems  to  have  been  nothing  revolution- 
ary about  the  measures;  that  there  has  been  a  develop- 
ment and  an  extension  of  the  system,  however,  cannot  be 
doubted.  We  may,  however,  ask,  what  forces  were  behind 
the  legislation?  In  view  of  the  current  belief  that  the 
Single  Taxers  were  responsible  for  the  introduction  of  the 
system  in  Canada,  it  is  significant  to  read  in  the  Single  Tax 
Review  that  the  man  who  drew  up  the  plan  of  taxation  in 
Edmonton,  William  Short,  did  not  know  who  Henry 
George  was,  nor  had  ever  heard  of  the  Single  Tax.^  Again, 
in  tracing  the  history  of  the  legislation  by  the  Vancouver 
Council  and  by  the  provincial  legislature,  Mr.  Dicey,  a 
Single  Taxer,  fails  to  show  the  influence  of  the  Single  Tax 
philosophy,  except  to  point  out  that  a  few  members  were 
followers  of  George.^  George  had,  indeed,  visited  Canada 
between  the  years  1885-90,  and  before  the  nineties  the 
Toronto  Single  Tax  Association  had  been  organized.' 
Nevertheless,  there  is  nothing  to  show  that  the  philosophy 
of  the  Single  Tax,  the  principle  of  land  nationalization,  had 
taken  root  in  the  young,  thriving  communities  of  western 
Canada,  where  land  is  the  chief  commodity,  the  chief 
cause  of  individual  aggrandizement.* 

*  Single  Tax  Review,  November-December,  1910,  p.  48. 
»  Ibid..  May-June,  1911,  pp.  56  ff. 

*  The  Public,  June  2,  1911,  p.  611. 

*  The  absm-dity  of  attributing  the  "Single  Tax"  as  administered  in 
western  Canada  to  the  Georgian  philosophy  of  the  Single  Tax  becomes 
apparent,  when  we  imagine  what  the  effect  of  municipalization  of  the 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   267 

The  introduction  of  the  tax  on  land  value  must  be  at- 
tributed rather  to  fiscal  and  economic  expediency  as  shown 
above.  ^  This  deduction  is  corroborated  also  by  the  feeble- 
ness of  the  opposition  which  the  legislation  everywhere 
encountered.  If  the  landowners  had  been  hereditary 
landed  proprietors,  or  if  they  had  been  drawing  income 
regularly  from  tenants  in  a  densely  populated  country 
where  land  has  a  value  more  or  less  stable,  their  interests 
would  have  been  opposed  to  a  tax  which  puts  a  heavier 
burden,  or  in  some  cases  the  whole  burden  on  land.  In 
Canada,  however,  landowners  are  primarily  speculators 
whose  chief  interest  lies  in  attracting  labor  and  capital, 
that  is,  new  settlers.  At  the  same  time  they  are  resident 
landowners,  and  they  prefer  to  have  their  improvements 
exempted.  What  wonder,  then,  that  they  so  generally  vote 
to  exempt  capital,  which  they  are  convinced  will  accumulate 
more  rapidly  if  untaxed,  and  to  increase  the  burden  of  the 
non-resident  landowner?  According  to  a  Single  Taxer,^ 
the  legislature  of  Saskatchewan  was  unanimously  in  favor 
of  the  bill  exempting  all  improvements  from  taxation.  The 
Union  of  Saskatchewan  Municipalities  in  the  convention  of 
1910  passed  a  resolution  favoring  the  abolition  of  taxes  on 
improvements.'  The  assessors  of  some  of  the  municipali- 
ties in  Alberta,  Saskatchewan,  and  British  Columbia 
unanimously  attributed  the  introduction  of  the  tax  to  the 
local  fiscal  and  economic  needs,  not  to  any  Single  Tax 
propaganda.  The  following  are  replies  of  some  assessors  as 
to  the  causes  of  the  adoption  of  land-value  taxation:  * 

Medicine  Hat:  "The  chief  reason  for  introducing  the 
single  tax  system  .  .  .  was  for  the  encouragement  of  build- 
ings, it  being  considered  that  the  taxation  of  improvements 
was  practically  a  fine  upon  improvements." 

land,  or  of  a  tax  on  all  the  value  increment  of  the  land,  would  have  on  the 
settlement  of  the  western  provinces. 

1  Supra,  §§  2,  3. 

'  F.  J.  Dixon,  The  Progress  of  Land  Value  Taxation  in  Canada,  p.  8. 

'  The  Canadian  Municipal  Journal,  October,  1911,  p.  S86. 

*  Replies  received  by  the  writer  in  answer  to  a  questionnaire. 


268  THE  TAXATION  OF  LAND  VALUE 

Moose  Jaw:  "That  the  burden  of  taxation  might  be 
borne  by  all  parties  receiving  benefits  therefrom." 

Prince  Albert:  "The  legislature  made  it  optional .  .  . 
the  Council  favored  its  adoption." 

Lethbridge:  "First,  it  was  a  mistake  to  penalize  those 
who  were  willing  to  build  and  to  operate  factories,  and  to 
penalize  merchants  who  were  willing  to  carry  first  class 
stocks;  secondly,  it  is  practically  impossible  to  get  an 
equitable  assessment  on  anything  but  land  values." 

Red  Deer:  "To  encourage  building." 

Edmonton:  "Much  of  the  land  in  centres  of  population 
was  held  by  non-residents  who  made  no  improvements  on 
it  but  simply  held  it  for  speculative  purposes.  The  people 
actually  living  in  these  centres  who  were  increasing  the 
value  of  lands  by  their  expenditure  of  time,  energy  and 
money  deemed  it  advisable  that  the  non-resident  land- 
owner whose  land  was  being  increased  in  value  by  them 
should  pay  as  much  towards  the  revenue  of  the  Municipal- 
ity as  they  did,  because  these  non-residents  were  reaping 
large  profits  on  account  of  increased  values  which  they  did 
very  little  to  bring  about." 

Alderman  Clarke,  of  Edmonton,  speaking  before  the 
convention  of  the  Union  of  Canadian  Municipalities,^ 
expressed  doubt  as  to  the  influence  of  the  Single  Tax  or 
other  economic  theory;  and  said  as  to  the  motive  of  the 
tax:  "I  believe  the  real  reason  for  the  adoption  of  the  land 
tax  in  Edmonton  was  that  a  mere  handful  of  people  who 
actually  lived  in  Edmonton  at  the  time  the  charter  was 
adopted  and  therefore  controlled  the  municipal  govern- 
ment, owned  all  the  improvements  in  the  city;  but  out- 
siders, non-residents,  owned  large  portions  of  land  within 
the  city  limits,  on  which  there  were  no  improvements. 
And  the  motive  for  exempting  improvements  was  really 
a  very  selfish  desire  to  saddle  the  non-residents  with  the 
greater  portion  of  the  taxes,  and  not  a  recognition  of  the 
*  Canadian  Municipal  Journal,  October,  1912,  p.  388. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   269 

justice  of  the  land  tax  in  itself.  .  .  .  The  agitation  which  led 
to  the  abolishment  of  the  floor  space  ^  and  business  tax 
came  almost  entirely  from  the  retailers." 

Although  there  was  surely  an  element  of  self-interest 
that  prompted  the  adoption  of  the  tax,  it  was  accompanied 
by  that  public-spirited  interest  in  a  new  community  which 
displays  itself  in  collectivistic  legislation.  In  western 
Canada,  indeed,  hand  in  hand  with  the  taxation  of  land 
value  goes  municipal  ownership  of  public  utilities.^  There 
is  an  aversion  to  the  granting  of  franchises  to  private  cor- 
porations, and  it  is  the  boast  of  Edmonton  that  "it  owns 
and  operates  its  street  cars,  telephones,  waterworks, 
power  plant,  street  paving  and  sewer  building  depart- 
ment." '  And  like  the  operation  of  public  utilities,  so  the 
exemption  of  improvements  has  been  introduced  as  a  mat- 
ter of  public  policy. 

§  6.  If  further  proof  were  needed  to  show  that  the  sys- 
tem of  exempting  improvements  from  taxation  was  not  the 
outgrowth  of  the  Single  Tax  propaganda,  it  would  be  fur- 
njroed  by  the  fact  that  not  the  slightest  agitation  exists 
/  /TO  make  land  the  sole  source  of  income  for  Dominion  or 
^  provincial  purposes.  On  the  contrary,  the  opportunistic 
character  of  the  system  is  clear  from  the  fact  that  land 
within  the  mimicipality  is  considered  the  proper  source  of 
local  revenue  only;  the  fact  that  the  community  gives  land 
its  value  is  never  lost  sight  of  in  these  communities.* 

*  In  many  Canadian  cities  the  taxation  of  business  prop>erty  valued 
on  the  basis  of  floor  space  which  the  business  occupied  superseded  the 
personal  property  tax. 

*  Canadian  Municipal  Journal,  October,  1912,  p.  S90. 

*  From  a  circular.  Calgary  likewise  owns  the  street  railway  system  as 
well  as  the  light  and  power  department,  which  are  a  soiux^  of  profit  to 
the  municipality.  "The  citizens  have  grown  up  with  a  firm  belief  in 
mimicipal  ownership,  and  the  results  —  in  the  form  of  good  service  and 
handsome  profits  —  justify  their  belief."  Canadian  Municipal  Journal, 
September,  1911,  p.  340. 

*  This  priuciple  is  illustrated  by  the  demand  by  North  Vancouver 
that  "  taxes  on  land  reverting  to  the  Crown  on  subdivision  be  paid  by  the 


c/ 


/ 


270  THE  TAXATION  OF  LAND  VALUE 

Moreover,  the  fact  that  a  few  municipalities,  and  they  are 
very  few,  have  aboHshed  for  local  purposes  all  other  taxes 
besides  those  on  land,  is  no  indication  that  they  were  dom- 
inated by  the  philosophy  of  the  Single  Tax.  It  is  impor- 
tant to  point  out,  moreover,  that  even  within  the  so-called 
'Single  Tax"  communities,  other  taxes  for  provincial  and 
Dominion  purposes  are  raised;  thus,  income  and  personal 
property  taxes,  death  duties,  customs  duties,  poll  taxes, 
etc.,  in  so  far  as  they  are  levied  by  the  provincial  or  central 
government,  fall  on  the  "Single  Tax"  municipalities  as 
well. 

Although  the  exemption  of  improvements  from  taxa- 
tion is  prevalent  throughout  all  the  western  provinces  and 
is  almost  universal  throughout  Alberta,  only  a  few  munici- 
palities have  as  yet  found  it  expedient  to  abolish  the  busi- 
ness, income,  or  other  subsidiary  taxes.  Licenses  continue 
to  be  levied  even  in  the  cities  where  the  "Single  Tax"  has 
been  introduced.  But  since  they  primarily  serve  a  social 
rather  than  a  fiscal  purpose,^  the  use  of  licenses  is  not  in- 
consistent with  the  purpose  of  the  system,  namely,  to  make 
land  value  the  chief  source  of  local  revenue. 

The  villages,  cities,  and  other  municipalities  where  land 
serves  as  the  sole  source  of  pubUc  income  (license  fees 
excepted)  are  the  following:  In  Alberta,^  Edmonton,  Medi- 
cine Hat,  Red  Deer;  in  British  Columbia,  Vancouver, 
Victoria,  Kelowna,  Westminster,  Prince  Rupert; '  in 
Saskatchewan  and  Alberta,  all  the  rural  municipalities. 
By  the  Town  Act  of  1912,  the  towns  in  Alberta  were 
obliged  to  exempt  all  improvements  and  to  aboUsh  all 

government  to  the  municipality."    Cf.  Canadian  Municipal  Journal, 
January,  1914,  p.  19. 

*  For  example,  a  saloon  license  or  a  dog  license  is  issued  not  for  revenue, 
but  for  health,  morality,  or  like  purposes. 

*  There  was  an  announcement  in  the  Canadian  Municipal  Journal, 
February,  1914,  p.  71,  that  Lethbridge  has  postponed  the  adoption  of  the 
Single  Tax. 

'  Cf.  Single  Tax  Review,  November-December,  1910,  p.  50.  , 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA  271 

other  forms  of  taxation  than  the  land  tax.  The  fiscal  diffi- 
culties which  this  general  enactment  occasioned  in  some  of 
the  towns  induced  the  legislature  to  amend  the  Act  the 
following  year.  Upon  a  petition  of  at  least  two-thirds  of 
the  members  of  the  council,  the  Minister  was  authorized  to 
grant  permission  to  the  council  to  impose  a  business  tax. 
The  tax  was  to  be  levied  according  to  the  rental  value  of 
the  business  premises,  was  not  to  exceed  twenty  per  cent 
of  the  rental,  and  was  to  be  raised  for  a  period  not  exceed- 
ing three  years.  ^  In  1914,  it  is  worth  noting,  this  permis- 
sive amendment  was  repealed,  and  the  levy  of  a  business 
tax  was  made  optional  with  the  council.  A  two-thirds  vote, 
however,  is  necessary,  and  the  maximum  tax  shall  not 
exceed  ten  per  cent  of  the  rental  value;  nor  can  the  busi- 
ness tax  be  adopted  for  a  period  exceeding  four  years  from 
December  31,  1914.  ^  It  would  seem,  therefore,  that  the 
business  tax  enactment  is  deemed  a  temporary,  and  an 
emergency  measure  merely.  As  only  twelve  towns  out  of 
the  forty-six  subject  to  the  Town  Act  had  in  1913  peti- 
tioned for  permission  to  levy  a  business  tax,  it  is  probable 
that  most  of  the  towns  derive  all  the  local  revenue  from 
the  land  tax  only. 

It  is  a  matter  of  some  interest  that  the  process  of  elim- 
inating other  taxes  than  that  on  land,  and  of  exempting 
improvements  was  a  gradual  one.'  In  Vancouver,  for 
example,  from  1895  to  1905,  improvements  were  assessed 
at  fifty  per  cent  of  their  value.  From  1906  to  1909,  the 
percentage  of  value  exempted  was  raised  to  seventy-five; 
only  since  1910,  therefore,  has  the  whole  value  of  improve- 
ments been  exempt.  Other  taxes  were  gradually  aboUshed 
in  Vancouver.  At  present,  however,  except  for  the  subsidy 

»  Alberta  (1913),  c.  8,  §  13  (1st  session). 

*  Ibid.  (1914),  c.  7,  §  7. 

*  Exception  to  this  statement  must  be  made  in  the  case  of  Alberta, 
where  by  a  "  blanket "  enactment  of  the  provincial  legislature  the  system 
was  suddenly  imposed  upon  the  towns.  For  the  evil  eflFects  of  this  meas- 
ure see  the  discussion  in  Haig,  op.  cit.,  pp.  129^. 


y 


«7«     THE  TAXATION  OF  LAND  VALUE 

from  the  provincial  government  for  hospitals,  schools,  and 
similar  purposes,  the  land  tax  in  Vancouver  suffices  for  all 
local  expenditures.^  In  Edmonton,  also,  the  elimination 
of  the  other  taxes,  the  poll,  business,  and  floor  taxes,  was 
gradual,  although  since  its  incorporation  (1904)  ^  Edmon- 
ton has  exempted  all  improvements  from  taxation.'  Or 
take  Red  Deer  for  illustration.  Before  1912  improvements 
were  assessed  at  fifty  per  cent  and  personal  property  was 
taxed.  In  that  year  the  tax  on  improvements  was  entirely 
removed,  and  now  land  constitutes  the  sole  source  of 
revenue.  While  in  all  the  above-named  localities  all  rates 
and  special  assessments  *  are  levied  on  the  unimproved 
value  of  the  land,  there  are  numerous  other  municipali- 
ties which  tend  to  become  "Single  Tax"  communities.^ 
That  the  process  of  change  to  the  new  system  in  the  prin- 
cipal cities  of  the  four  provinces  is  not  complete,  however, 
can  be  seen  from  the  data  shown  in  the  table  on  page 
273. 

*  The  subsidy  comes  out  of  the  provincial  taxes  levied  in  Vancouver 
on  personal  property  and  income  (the  provincial  poll  tax  of  $3  on  all 
males  between  the  ages  of  eighteen  and  sixty  years  was  abolished  only  in 
1912).  (From  a  letter  by  the  Assessment  Commissioner,  H.  J.  Painter 
of  Vancouver.)  The  succession  duty  and  corporation  and  railway  taxes 
are  other  sources  of  provincial  revenue  in  British  Columbia.  C/.  The 
Year  Book  of  British  Columbia  (1911),  pp.  281  ff. 

'  Cf.  Ordinances  of  the  Northwest  Territories  (1904),  c.  19. 

*  Canadian  Municipal  Journal,  October,  1912,  p.  388.  The  tax  on 
transient  traders,  circuses,  etc.,  has  been  retained  "  only  for  the  purpose 
of  regulating  the  holders  from  the  standpoint  of  health  and  morality  and 
public  safety." 

*  "Special  assessments,"  that  is,  the  building  of  roads,  streets,  and 
sanitary  improvements,  by  taxing  the  particular  landowners  whose  prop- 
erty is  improved,  are  very  general  in  western  Canada.  In  Medicine  Hat, 
for  example,  the  property-owners  paid  two-thirds  of  the  cost  of  the  side- 
walks on  streets  (business  section),  the  city  one-third  of  the  cost;  on  the 
avenues  the  owners  paid  one-third,  the  city  two-thirds.  The  Canadian 
Municipal  Journal,  May,  1914,  p.  199. 

*  Cf.  supra,  p.  270,  note  2,  for  example. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA  278 

TABLE  SHOWING  THE  SOURCES  OF  TAX  REVENUE  IN 
THE  PRINCIPAL  CITIES  OF  WESTERN  CANADA  ^ 


Ciijf 

Popula- 
tion 
U911) 

Per  cent  of  value 
assessed 

Other  taxes  for  local 

Land 

100 
100 

100 
100 

100 
100 
100 

100 

100 
100 
100 

100 

Improve- 
ments 

purposes 

British  Columbia  : 

Vancouver 

Victoria 

Manitoba  : 

Winnipeg 

Brandon 

Alherta  : 

Edmonton 

Calgary 

111,240 
31,660 

136,035 
13,839 

24,900 

43,704 

8,050 

5,608 

80,213 
12,004 
13,823 

6,254 

66f 
50 

25' 
33i 

30 
25 

452 

15' 

Business  tax  * 
Business  tax  » 

Business  tax  ' 

Lethbridge 

Medicine  Hat . . . 

Saskatchewan  : 
Regina 

Business  tax,  poll,  su- 
perassessment  tax  ' 

Saskatoon 

Moose  Jaw 

Prince  Albert.... 

Business,  income,  and 
poll  taxes 

>  Compiled  from  data  in  Commercial  Hand  Book  oj  Canada,  6000  Factt  About  Canada, 
Canadian  Year  Book,  and  from  letters  by  the  assessors  of  the  resi)ective  cities. 

»  The  assessor  of  Moose  Jaw  writes  that  a  reduction  of  the  percentage  by  fifteen  per 
cent  will  be  made  annually  until  the  whole  value  ot  the  improvements  will  be  exempt. 

'  The  reduction  of  the  taxable  percentage  of  improvements  since  1911  has  been  at  the 
rate  of  fifteen  per  cent;  after  1013  improvements,  it  was  hoped,  would  be  entirely  exempt. 

*  The  tax  is  levied  on  the  annual  rental  value  of  the  premises  used  for  business  purposes. 
The  rate  is  six  and  two-thiids  per  cent.  Licenses  also  yield  a  considerable  revenue  in  Winni- 
peg. 

*  The  business  tax  in  Brandon  is  based  on  the  annual  rental  value  of  business  premises; 
the  rate  is  ten  per  cent. 

*  In  Calgary,  the  business  tax  (called  personal  property  tax)  is  on  the  basis  of  the  value  of 
the  stock.  The  assessment  is  made  on  two-thirds  of  the  average  annual  amount  of  stock.  Cf. 
Dixon,  The  Frogrest  of  Land  Value  Taxation  in  Canada,  p.  8. 

'  The  basis  of  the  business  tax  in  Lethbridge  b  fifty  per  cent  of  the  value  of  the  stock. 
The  poll  tax  is  on  single  men  only,  who  are  not  otherwise  taxable  and  are  over  twenty-one 
years  of  age.  The  superassessment  is  an  assessment  of  twenty-five  per  cent  over  and 
ftbove  the  actual  value  of  vacant  building  property. 


§  7.  In  such  small  communities  as  the  municipalities  of 
western  Canada  the  system  of  administration  and  valua- 


«74  THE  TAXATION  OF  LAND  VALUE 

tion  does  not  involve  many  difficulties.  First,  as  regards  the 
administration,  the  council  and  mayor  are  responsible  for 
the  proper  assessment  and  collection  of  the  tax.  They 
appoint  the  assessor  or  assessors  ^  who  prepare  the  assess- 
ment roll.  To  check  up  their  work,  the  council  in  many  of 
the  municipalities  appoints  two  of  its  members,  who  with 
the  assessor  constitute  the  assessment  committee.  A  ma- 
jority of  this  committee  is  sufficient  to  change  the  valuation 
of  the  assessor.  When  the  roll  has  been  corrected  and 
supervised,  notices  of  the  assessment  are  sent  out  to  the 
taxpayers.  Any  person  may  appeal  against  the  assess- 
ment to  the  court  of  revision,  into  which  the  council  re- 
solves itself  for  the  purpose  of  hearing  appeals.^  From  this 
court  further  appeal  is  possible  to  a  judge  of  the  court 
having  jurisdiction  in  that  municipality.  The  assessments 
are  generally  made  annually,  although  the  council  is  em- 
powered to  vote  to  adopt  the  assessment  roll  of  the  pre- 
ceding year,  without  undertaking  a  new  valuation. 

The  law  requires  that  the  land  and  improvements  be 
assessed  separately,  the  former  at  its  actual  cash  value, 
the  latter  at  the  cost  of  replacing  such  improve- 
ments at  the  time  of  assessment,  taking  into  account  the 
condition  of  the  property,  and  allowing  for  any  deteriora- 
tion. In  valuing  the  land,  moreover,  it  is  often  provided 
that  the  location  and  the  purpose  for  which  the  land  is 
used  or  might  be  used  within  a  reasonable  time  be  con- 
sidered. In  other  words,  the  community  influences  that 
affect  the  value  of  the  land  are  to  be  taken  into  account,' 

1  In  many  cases  the  secretary-treasurer  of  the  municipality  has  been 
appointed  assessor.  Cf.  The  Public  Service  Monthly,  vol.  n,  September, 
1913,  pp.  8,  9. 

*  In  British  Columbia,  the  council  or  five  members  of  the  council  may 
sit  as  the  court  of  revision.  One  month's  notice,  by  publication  in  the 
Official  Gazette  and  a  newspaper,  is  given  of  the  sitting  of  the  court  of 
revision.  The  members  of  the  court  form  a  quorum  and  a  majority  of  a 
quorum  may  decide  all  questions  of  appeal.  Year  Book  of  British  Columbia 
(1911),  p.  272. 

*  In  the  Alberta  law  it  is  even  stipulated  that  when  the  assessed  value 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   £75 

The  assessors  are  aided  in  their  work  of  ascertaining  the 
value  of  the  land  by  the  records  of  sales,  and  by  comparing 
the  quality  of  the  soil,  in  case  of  agricultural  land,  with  an 
average  quarter  section  taken  as  a  standard,  and  by  con- 
sidering the  location  of  the  land  with  respect  to  the  high- 
way, railway,  and  market-places.  ^  The  land  registry  system 
facilitates  the  valuation.  In  British  Columbia,  the  right  of 
way,  and  the  improvements  thereon,  of  railway  companies 
are  assessed  as  real  property  within  the  municipality.' 
Crown  land  under  preemption  or  lease  is  liable  for  taxes 
as  if  owned. 

Such  is  the  law  with  respect  to  valuation.  In  actual 
practice  underassessment  frequently  occurs.  In  some 
places,  e.g.,  Saskatoon,'  the  assessors  reported  an  under- 
valuation of  from  ten  to  twenty  per  cent.  Often  this  was 
due  to  the  rapid  rise  of  land  value.  In  the  recent  ebb  tide 
of  values,  overassessment  was  frequent.  In  the  Canadian 
municipalities,  however,  where  the  valuation  is  for  local 
purposes  only,  uniformity  in  assessment  is  of  greater  im- 
portance than  full  value  assessment. 

It  has  been  pointed  out  that  in  practice  the  exemption 
of  improvements  in  western  Canada  applies  to  buildings, 
fences,  trees,  and  other  visible  improvements,  not  to  filling, 
grading,  clearing  from  timber,  draining,  and  irrigation,  etc.^ 
In  many  of  the  Acts,  improvements  include  "any  other 

is  either  below  or  above  its  actual  value,  the  assessed  value  shall  not  b« 
changed  upon  appeal,  if  such  value  bears  a  "  fair  and  just  proportion  to 
the  value  at  which  the  lands  in  the  immediate  vicinity  of  the  land  are  as- 
sessed." Alberta  (1906),  c.  63,  Pt.  xxxi,  §  5.  This  clause  has  recently  served 
an  unforeseen  purpose  in  the  towns,  so  that  an  amendment  was  necessi- 
tated. In  the  fiscal  exigency  caused  by  the  institution  of  the  Single  Tax, 
the  towns  interpreted  the  above  clause  as  legalizing  overvaluation  of  the 
land.  (See  infra,  §  9.)  To  prevent  such  interpretation,  this  amendment 
was  adopted  in  1914,  "  that  in  no  case  shall  an  obviously  excessive  assess- 
ment be  maintained."   Alberta  (1914),  c.  7,  §  5. 

^  Cf.  The  Public  Service  Monthly  (Sask.),  vol.  n,  September,  1913,  p.  9. 

»  The  Year  Book  of  British  Columbia  (1911),  p.  £73. 

*  Haig,  op.  cit.,  p.  59. 

«  Biillock,  in  New  York  Evening  Pott,  June  27,  1914. 


276  THE  TAXATION  OF  LAND  VALUE 

increase  in  value  (of  the  land)  caused  by  any  other  expendi- 
ture of  labor  or  capital  thereon."  Cases  do  occur  of  land 
whose  value  after  clearing  has  fallen  below  the  cost  of 
clearing  and  improvement.  It  is  recognized,  however,  that 
only  so  much  of  the  cost  of  the  improvement  can  be  ex- 
empted as  remains  unexhausted  at  the  time  of  valuation.^ 
Whether  the  rule  is  theoretically  valid  or  not,  valuers  have 
found  it  practicable. 

A  less  common  method  of  assessment  exists  in  Medicine 
Hat.  Under  the  Act  of  Incorporation,  the  council  was  em- 
powered to  set  apart  certain  sections  of  the  land  to  be 
known  as  improvement  districts.^  Within  these  districts, 
land  which  is  not  being  utilized  as  the  demands  of  the  vi- 
cinity require,  that  is,  unimproved  land,  may  be  subject  to 
a  superassessment.  The  council,  in  case  it  decides  to  levy 
such  a  superassessment  tax,  determines  the  proportion  of 
overvaluation,  which  is,  however,  in  no  case  to  exceed  fifty 
per  cent  of  the  actual  value.  For  example,  owner  A  has 
a  parcel  of  land  valued  at  $500  which  is  unimproved.  The 
assessor,  by  a  vote  of  the  council  enacting  a  superassess- 
ment of  twenty-five  per  cent  above  the  value  of  the  land, 
enters  A's  land  on  the  roll  at  $625.  The  purpose  of  this 
provision  is  clearly  to  encourage  improvement  and  to 
subject  the  absentee  holder  to  a  greater  burden  of  taxa- 
tion.' Lethbridge  also  has  had  such  a  tax  for  many  years. 
In  1913,  the  superassessment  was  twenty-five  per  cent 
above  the  value  of  the  land. 

When  the  assessment  roll  has  been  completed,  the  coun- 
cil fixes  the  rate  of  tax.   The  general  rate,  when  levied  on 

*  So  in  Australasia.  Cf.  supra,  chapter  m,  §  4.  Cf.  also  Report  of  the 
Royal  Commission  on  Taxation  of  British  Columbia  (1911),  p.  B  25. 

»  Alberta  (1906),  c.  63,  Pt.  xxxi,  §  5. 

'  The  tax  assessor  of  Lethbridge  writes:  "Some  years  ago  it  was  no- 
ticed that  a  very  large  proportion  of  vacant  property  in  the  city  was  held 
by  outside  speculators,  and  the  council  at  that  time  obtained  permission 
from  the  Legislature  to  put  a  clause  in  the  city  charter  allowing  them  to 
superassess  this  vacant  land  within  a  certain  limit  of  the  improved  area 
to  the  extent  of  fifty  per  cent."  From  a  letter  to  the  writer. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   277 

land  only  is  usually  not  to  exceed  two  per  cent  of  the 
assessed  value.  When  improvements  are  taxed,  the  max- 
imum rate  is  in  most  cases  one  per  cent.  In  British  Colum- 
bia where  improvements  are  not  taxed  above  fifty  per  cent 
of  their  value,  the  general  rate  may  not  exceed  one  and 
one-half  per  cent.  Besides  the  general  rate,  school,  park, 
library,  hospital,  health,  and  other  special  rates  are  levi- 
able. A  tax  for  paying  the  interest  on  the  municipal  debt 
may  also  be  raised.  Local  improvement  rates  and  those 
special  rates  to  be  expended  for  improvements  benefiting 
particular  areas  in  the  municipality  are  raised  by  special 
assessments,  that  is,  the  cost  of  such  improvements  is 
charged  to  the  particular  property  benefited.  The  principle 
of  "special  assessment "  is  in  accord  with  that  of  land-value 
taxation  and  is  well  recognized  in  the  systems  of  taxation 
throughout  Canada.^  A  rebate  is  allowed  for  the  prompt 
payment  of  the  tax.  In  case  of  delinquency  in  payment 
interest  is  charged,  and  if  the  tax  is  not  paid  usually  within 
three  months  of  the  date  of  notice,  lands  are  liable  for  sale.' 
Lands  sold  for  delinquent  taxes  may  be  redeemed  within 
one  year  from  the  day  of  sale  on  payment  of  the  amoimt 
for  which  the  land  was  sold  plus  interest.' 

§  8.  By  far  the  most  important  fiscal  consideration 
which  the  system  of  taxing  land  value  presents  is  the  ade- 
quacy or  productiveness  of  the  tax  for  all  local  expenditure. 
That  the  real  estate  tax  constitutes  an  elastic  source  of 
revenue  is  well  established.  By  mere  regulation  of  the  rate 
of  tax,  the  required  revenue  can  be  obtained.  The  aim  in 
taxation  is,  of  course,  to  keep  the  rate  of  tax  as  low  as  pos- 
sible. When,  however,  improvements  are  exempted  from 
taxation,  and  when  the  land  has  been  assessed  at  its  full 
value,  the  rate  of  tax  must  be  increased  to  yield  the  same 
sum  of  revenue  as  before.    This  increase  in  rate  of  tax  is 

*  See  supra,  p.  272,  note  4. 

«  Cf.  British  Columbia  (1911),  c.  170,  §  278. 

»  Cf.  Year  Book  of  British  Columbia  (1911),  p.  272. 


278 


THE  TAXATION  OF  LAND  VALUE 


obviated  only  under  one  condition,  namely,  when  the  value 
of  the  land  has  appreciated.  An  illustration  will  make  this 
clear.  Suppose  the  assessed  value  of  the  land  in  a  munici- 
pality is  $200,000,  that  of  the  improvements  $50,000.  To 
obtain  a  revenue  of  $5000,  the  rate  of  tax  on  real  estate  will 
be  twenty  mills.  The  following  year  let  the  improvements 
be  exempt  from  taxation,  and  the  tax  rate  will  have  to  be 
twenty-five  mills,  unless  in  the  mean  time  the  value  of  the 
land  has  appreciated  to  $250,000.  This  was  indeed  the 
secret  of  the  fiscal  success  of  this  system  of  taxation  in  the 
western  provinces  before  the  business  depression  that  set 
in  in  1913.  Here  the  land  actually  tended  to  appreciate 
more  rapidly  than  the  expenditure  of  the  municipalities, 
so  that  the  rate  of  tax  did  not  need  to  be  raised  inordinately 
when  improvements  were  untaxed.  Another  noteworthy 
advantage  that  rendered  this  system  of  taxation  more 
expedient  in  the  western  than  in  the  eastern  and  other 
densely  populated  cities,  was  that  in  those  newer  commu- 
nities the  value  of  the  improvements  tended  neither  to 
increase  so  rapidly  as  the  land  nor  to  equal  the  value  of  the 
land  as  in  older  cities.  For  example,  compare  the  assessed 
value  of  property  in  Vancouver  and  Calgary  with  that  in 
Toronto  and  Montreal:  * 

ASSESSED  VALUE  OF  PROPERTY  IN  1912 


Vancouver. 
Montreal . . 
Toronto . . . 
Calgary  . . . 


Land 


$138,557,595 
377,670,560 
147.668,179 
102,260.915 


Per  cent  of 
total  assess- 
ment 


72.2 
69.2 
50.6 
83.0 


Improvements 


$53,515,295 

260,351.065 

144.131.416 

20,813.620 


Per  cent  of 

total  assesS' 

ment 


27.8 
40.8 
49.4 
16.9 


*  Financial  and  Departmental  Reports,  Vancouver.  B.C.  (1912),  p.  60; 
Report  of  Assessment  Department,  City  of  Montreal  (1912).  p.  4;  Man- 
ual of  Calgary;  Report  on  Taxation  of  Improvements  by  Assessmeni  Com- 
missioner of  Toronto  (1912),  p.  11. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   279 

By  exempting  improvements,  therefore,  the  added  burden 
of  taxation  on  land,  ceteris  paribtis,  would  be  considerably 
heavier  ^  in  the  eastern  than  in  the  western  cities. 

The  distribution  of  burden  on  the  individual  owners  un- 
der the  system  of  taxing  land  value,  however,  is  quite 
another  proposition.  Clearly,  if  the  rate  of  tax  must  be 
doubled,  land  with  no  improvements  will  be  taxed  most, 
land  with  improvements  of  the  same  value  as  the  site  will 
pay  the  same  amount  of  taxes,  while  the  owner  of  land 
whose  value  falls  short  of  the  value  of  the  improvements 
will  pay  less  than  under  the  realty  tax.  The  shift  of  burden 
which  the  exemption  of  improvements  occasions  is  appar- 
ent from  the  following  assumed  cases:  A,  B,  C,  D,  etc., 
are  owners  of  parcels  of  real  estate,  the  respective  values 
of  which  and  the  amount  of  taxes  payable  under  the  differ- 
ent systems  and  rates  of  taxation  are  set  forth  and  com- 
puted in  the  following  table:  — 


Assessed  value 

Realty  tax 
when 

Land-value  tax  when 

Rate  of  tax 
is  15  mills 

Rate  is  SO 
mills 

Rate  is  20 
mills 

.    (Land $15,000) 

^  }  Building 15,000  J 

T,   (Land 15.000) 

"  )  Building 5,000  J 

f^  (  Trfind 15,000  ) 

^  i  (vacant)  f 

p.  (Land 15,000 

^  }  BuUding 20,000  \ 

$450 
800 
225 
525 

$450 
450 
450 
450 

$300 
300 
300 
300 

The  above  table  shows  the  incidence  of  the  tax  un- 
der various  circumstances.    Assuming  (1)  that  the  same 

*  It  is  very  significant,  however,  that  even  in  an  old  city  such  as  Mon- 
treal, the  value  of  improvements  does  not  equal  the  value  of  the  land. 
Indeed,  the  assessment  of  1913  shows  an  increase  of  $125,259,245  in  the 
value  of  the  land,  and  an  increase  of  only  $28,532,375  in  the  improve- 
ments. Cf.  Report  of  Assessment  Department,  City  of  Montreal  (1913),  p.  4. 


280  THE  TAXATION  OF  LAND  VALUE]! 

amount  of  revenue  must  be  raised  after  the  institution  of 
the  tax  on  land  value  as  before,  and  (2)  that  the  value  of 
the  improvements  in  the  community  just  equals  that  of 
the  land,  then  the  new  rate  of  tax  will  be  thirty  mills  in- 
stead of  fifteen  mills  as  shown  in  columns  2  and  3.  How 
will  the  change  in  the  system  of  taxation  affect  the  amount 
of  taxes  payable  by  the  four  proprietors  A,  B,  C,  D,  each 
of  whom  owns  tracts  of  land  of  the  assumed  value  of 
$15,000,  but  under  various  conditions  of  improvement? 
From  the  table  (columns  2  and  8)  it  will  readily  be  seen 
that  D  whose  land  is  best  utilized  will  alone  profit  by  the 
change  from  the  realty  to  the  land-value  tax.  His  tax  bill 
will  be  $75  less  than  before;  A  will  be  liable  for  the  same 
amount;  while  B  and  C  whose  land  is  kept  in  a  compara- 
tively undeveloped  condition  will  be  more  heavily  bur- 
dened than  before. 

Suppose,  again,  that  instead  of  being  equal  to  the  value 
of  the  land,  the  value  of  improvements  in  the  municipaUty 
is  one-third  that  of  the  land,  as  is  the  case  in  many  of  the 
western  Canadian  municipalities.  Then  a  rate  of  twenty 
mills  will  suflBce  to  yield  the  same  revenue  as  before  the 
institution  of  the  system.  The  incidence  of  the  burden  in 
that  case  is  illustrated  in  column  4.  Both  A  and  D  will  pay 
less;  B  will  pay  the  same;  while  C  will  again  be  subjected 
to  a  higher  tax.  In  other  words,  the  tax  on  land  value  fa- 
vors the  owner  of  the  more  highly  improved  land  as  com- 
pared with  the  owner  of  the  less  improved  land;  and  the 
less  the  increase  in  rate  occasioned  by  the  change  of  sys- 
tem, the  greater,  of  coiu*se,  is  the  reUef  to  the  owner  of 
improved  property. 

As  a  matter  of  fact,  the  Canadian  municipalities  were 
unusually  circumstanced  in  that  the  adoption  of  the  tax  on 
land  value  did  not  necessitate  a  great  increase,  if  any,  in 
the  rate  of  tax,  even  in  spite  of  the  growing  budgets.  The 
reason  for  this  is  the  important  fact  that  land  tended  to 
appreciate  so  rapidly  in  value  in  those  communities.  The 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   281 


truth  of  this  assertion  is  made  evident  from  the  following 

table:  — 

TABLE  SHOWING  INCREASE  IN  THE  ASSESSED  VALUE 
OF  REAL  PROPERTY  IN  CERTAIN  SMALL  COMMUNI- 
TIES,   1912-1913  1 


Locality 


Port  Coquitlam,  B.C. . .  . 
North  Battleford.  Sask.* 
Portage  La  Prairie,  Man. 
Medicine  Hat,  Alta.*  . , , 

Moose  Jaw,  Sask.* 

Orillia,  Ont 

Milden,  Sask 

Bassano,  Alta.* 

Point  Grey,  B.C 

Saskatoon,  Sask 

Broadview,  Sask 

Canora,  Sask 


Assessed  value 
of  property 


$6,449,887 
10,034,137 

4,473,612 
20,393,950 
51.997,286 

3,429,080 
146,000 

1,675,360 
19,911,318  • 
54,463,930 
604,094 

2,081,600 


Increase  over 
preceding  year 


$1,449,887 
4,454,740 
365,267 
13,381,365 
8,331,988  * 
500,000 
54,000 
243,290  » 
5,266,730 
18,992,515  » 
132,421 
1,155,950 


>  Data  collected  from  the  "Financial  Notes"  columns  of  the  Canadian  Municipal  Jour- 
nal  (1910. 1911, 1912, 1913),  and  from  official  letters  to  the  writer.  The  accuracy  of  soma 
of  the  above  figures  cannot  be  vouched  for  as  they  are  not  all  official. 

»  North  Battleford  will  introduce  the  tax  on  land  value  as  the  sole  source  of  local  revenue 
within  two  years.   {Canadian  Municipal  Journal,  September,  1913,  p.  373.) 

*  The  assessment  is  on  land  only. 

*  The  assessment  in  Moose  Jaw  in  1914  fell  below  that  of  1913,  the  total  gross  assessment 
being  $50,651,090.  Figures  taken  from  a  letter  by  the  City  Assessor. 

•  ASSESSMENT  AND  TAXATION  OF  TOWN  OF  BASSANO  AND  BASSANO 
SCHOOL  DISTRICT  FOB  THE  YEABS  1910  TO  1914 


1910 

1911 

i9ia 

191S 

1914 

Assessed  valuation 
in  town  munici- 
palities  

Assessed  valuation 
in  school  district 

Municipal       rate, 
mills 

School  rate,  mills. . 

$293,325 

Not 
formed 

10 

Not 
formed 

$478,736 

478.736 

15 

15 

$1,432,070 

1,432,070 

13 

7 

$1,676,360 

3,169,760 

16% 

2% 

$1,750,435 

3,373.811 

18% 

*  The  assessment  is  o 

*  The  appreciation  in 
Year 

1910 

n  land  only, 
the  value  o 

land  in  Sas 
Aiteasment  o 
.     $8,639.7 
.     21,545.7 
.     86.471.4 
.     54,463,9 
.     64,461,3 

katoon  is  show 

nland 

60 

58 

15 

30 

50 

n  below:  — 

Tax  rate  (milU) 
21 

1911 

18 

1912 

18 

IMS 

18 

1914 

1714 

(Data  furnished  the  writer  by  the  City  Assessor.) 


282 


THE  TAXATION  OF  LAND  VALUE 


What  is  thus  characteristic  of  these  smaller  communities 
is  even  more  strikingly  characteristic  of  the  larger  cities, 
Edmonton,  Calgary,  Vancouver,  and  Winnipeg,  as  shown 
in  the  tables  on  the  opposite  page. 

In  spite  of  the  growth  of  the  towns,  therefore,  and  of  the 
increased  expenditure  which  this  growth  necessitates,  the 
rate  of  tax  has  not  had  to  be  increased  in  many  cases.  In 
many  cases  the  rate  has  even  been  reduced,  while  in  many 
more  it  has  had  to  be  increased  but  slightly.^ 

A  few  examples  of  the  rate  of  tax  in  some  of  the  cities 
in  western  Canada  are  shown  below:  ^ 


Municipality 


1910 

1911 

1912 

(miUs) 

(mills) 

{mills) 

20 

20 

20 

17 

13.7 

12 

16 

14.5 

12.5 

10.8 

13.25 

12 

,  , 

23.5 

15 

15.26 

13.33 

13 

14 

11 

16.5 

10 

15 

13 

16 

7 

21 

18 

18 

18 

18.1 

15.88 

26.25 

24 

21 

1913 
{mills) 


Vancouver 

Edmonton 

Calgajy 

Winnipeg 

Kelowna 

Prince  Albert . . . 

Medicine  Hat. . . 

Bassano : 
Municipal  rate 
School  rate  . . . 

Saskatoon 

Begina 

Victoria 


20 

16 

18.75 

13 

17.6 

11 

15 

16.5 
2.6 
18 
14 
20 


The  significance  of  the  above  table  may  be  summarized 
thus :  First,  in  1913,  even  though  the  depression  had  set  in, 
the  maximum  rate  of  tax  did  not  exceed  two  per  cent.  Sec- 
ondly, in  five  of  the  cities  the  rate  was  either  reduced  or 

*  This  enormous  appreciation  in  land  value  from  year  to  year  is  not 
only  responsible  for  the  abolition  of  other  taxes  in  the  municipalities,  but 
also  for  the  excessive  indebtedness  incurred  by  the  western  towns  because 
a  surplus  revenue  leads  to  extravagance  in  public  expenditure.  Thus 
while  public  improvements  tend  to  enhance  the  value  of  land,  so  the  latter 
in  turn  becomes  itself  the  cause  of  the  public  outlays  for  improvement. 

*  Data  gathered  from  various  sources,  chiefly,  however,  from  the  re- 
plies to  the  questionnaire. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   283 

TABLE  SHOWING  INCREASE  IN  THE  VALUE  OF  TAXABLE 
PROPERTY  IN  CALGARY,  EDMONTON,  AND  WINNIPEG* 


Assessed  value  of  taxable  property 

Year 

Calgary 

Edmonton 

Winnipeg 

1901 

$2,307,040 

$1,395,912 

$26,405,770 

190« 

2,383,325 

1,724,420 

28,615,810 

1903 

8,221,549 

3,208,100 

86,273,400 

1904 

4,099,437 

8,959,648 

48,214,950 

1905 

5,433,469 

6,620,985 

62.727,630 

1906 

7,771,921 

17,046.798 

80,511,725 

1907 

12,832,496 

21,985,700 

93,825.960 

1908 

17,941.698 

22,535,210 

116.106,390 

1909 

19,824,978 

25,584,990 

107,997,320 

1910 

80,796,092 

80,105.110 

157,608,220 

1911 

52,747,600 

46,494,740 

172,677,250 

1912 

112,559,400 

128,475,070* 

214,360,440 

*  This  enormous  increase  of  nearly  300  per  cent  in  assessable  value  is  in  part  due  to  the 
annexation  to  Edmonton  in  1012  of  the  suburban  town,  Stratbcona. 


TABLE  SHOWING  THE  PHENOMENAL  GROWTH  OF  VAN- 
COUVER IN  POPULATION  AND  IN  VALUE  OF  ITS  LAND 
AND  IMPROVEMENTS* 


Year 

Popula- 

Per 

cent  of 

Assessed 

Per  cent 

Assessed 
value  of 

Per  cent 
increase 

tion 

in- 
crease 

value  of  land 

of  increase 

tmprove- 
ments 

1887 

5,000 

$2,456,842 

$182,235 

1891 

13,685 

174 

10,477,420 

826 

1,501,665 

724 

1895 

17,862 

81 

13,829,724 

82 

4,817,660 

187 

1899 

24,000 

S5 

12,705,099 

decrease 

5,011.190 

16 

1903 

84,484 

44 

13,845,565 

9 

9,091,270 

81 

1907 

60,100 

74 

88,346,335 

177 

16,381,475 

80 

1911 

111,240 

85 

98,720,345 

158 

37,858,660 

131 

1912 

122,100 

9 

138,557,545 

43 

58,515,295 

41 

*  For  Calgary,  cf.  Annual  Report  of  City  of  Calgary,  Alta.  (1912),  p.  10; 
for  Edmonton,  City  of  Edmonton,  Ninth  Annual  Report,  Financial  and 
Departmental,  p.  365;  Winnipeg,  Municipal  Manual  (1918'),  p.  137. 

*  Corporation  of  the  City  of  Vancouver,  B.C.,  Financial  and  Departmental 
Reports  (1912). 


284  THE  TAXATION  OF  LAND  VALUE 

remained  the  same  throughout  the  four  years*  period;  in 
the  other  six  municipahties  only  a  slight  increase,  or  slight 
fluctuation,  in  rate  is  noticeable.  Thirdly,  in  the  five  cities 
relying  on  the  land  as  the  sole  source  of  revenue,  the  max- 
imum rate  of  tax  was  twenty  mills,  the  minimum  fifteen 
mills.  Kelowna  required  a  rate  of  fifteen  mills  when  im- 
provements were  taxable,  a  rate  of  seventeen  and  three- 
fifths  when  improvements  were  exempt.  The  fact  that  in 
Vancouver,  since  1906,  the  rate  of  tax  continued  to  be 
twenty  mills  shows  that  the  complete  untaxing  of  im- 
provements which  was  instituted  in  1910  did  not  occa- 
sion an  increase  in  rate.  Where  the  value  of  land  rises  so 
enormously  as  to  obviate  an  increase  in  rate  of  tax,  the 
substitution  of  the  tax  on  the  unimproved  value  of  the  land 
for  that  on  realty  will  not  only  relieve  the  owner  of  im- 
proved land,  but  will  add  only  slightly,  if  at  all,  to  the 
burden  of  unimproved  land. 

§  9.  Before  the  recent  industrial  crisis  set  in  it  would 
have  been  possible  to  say  that  the  adoption  of  the  tax  on 
land  value,  even  as  a  single  tax,  was  highly  expedient  in 
western  Canada,  from  the  standpoint  of  both  elasticity 
and  productiveness.  In  fact,  under  the  conditions  dis- 
cussed, elasticity  is  not  an  unmixed  good.  The  unwill- 
ingness to  reduce  the  tax  rate  leads  to  extravagance  in 
expenditure.  The  tax,  however,  is  self-sufBcient,  where, 
as  in  the  municipalities  of  western  Canada,  the  value 
of  the  land  is  an  ever-increasing  source  of  revenue.  And 
it  is  for  this  reason  that  the  other  taxes,  such  as  burden 
industry  or  labor  can  be  dispensed  with. 

The  results  of  the  industrial  depression  have  been  seized 

upon  by  the  adversaries  of  the  Single  Tax.  We  are  in  this 

section  concerned  only  with  the  fiscal  aspect  of  the  land 

tax.     What,  then,  has  been  the  effect  of  the  present 

"slump"  in  land  value  on  the  municipal  tax  system?  ^ 

^  My  conclusions  are  drawn  particularly  from  Dr.  Haig's  study.  The 
investigation  was  made  on  the  spot,  in  1914,  during  the  depression.  And 
in  the  first  part  of  his  book  he  has  put  the  results  of  the  study  in  a 
form  which  makes  it  in  a  sense  source  material. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   285 

To  appreciate  the  industrial  situation  in  western  Canada, 
the  abnormally  speculative  values  of  land  before  1913 
must  be  called  to  mind.  Also  the  fact  that  the  stagnant 
condition  of  the  realty  market  left  many  realty  operators 
with  a  large  number  of  holdings  on  their  hands,  land  yield- 
ing no  income,  yet  on  which  taxes  had  to  be  paid.  "The 
economic  condition  of  Saskatoon  is  much  more  serious  than 
the  people  realize.  They  expect  the  present  depression  to 
be  relieved  very  soon;  but  relief  will  not  come  for  many 
years.  The  fundamental  richness  of  the  country  cannot 
be  denied;  but  the  values  of  the  city  real  estate  anticipate 
the  far  distant  future.  The  distant  future  will  take  care 
of  itself  very  nicely;  the  immediate  present  is  another 
question.  Many  men  who  counted  themselves  rich  two 
years  ago  and  who  did  not  get  rid  of  their  real  estate  are  in 
real  distress.  An  acquaintance  who  owns  a  half  section  laid 
out  in  lots  within  the  city  Umits  confided  that  he  was 
greatly  worried  about  his  grocery  bill.  With  taxes  due  on 
a  piece  of  land  assessed  at  $20,000,  *I,  myself,  do  not  know 
where  in  the  world  to  get  the  money  to  pay  them  with.' 
The  heavy  land  tax  makes  it  difficult  to  carry  vacant  land. 
Every  one  feels  it.  Up  to  this  time  people  have  paid  abso- 
lutely no  attention  to  taxes;  they  have  been  an  unimpor- 
tant detail.  People  paid  them  cheerfully.  There  has  been 
no  public  discussion  about  them  and  they  have  not  entered 
into  calculations.  Now,  for  the  first  time,  attention  is  being 
called  to  them.  It  is  foolish  to  say  that  land  has  not  de- 
preciated in  value.  The  bottom  has  entirely  fallen  out  of 
the  market.  No  prices  are  being  quoted,"  etc.^  Or,  "Ed- 
monton has  not  been  so  hard  hit  as  other  cities  by  the 
present  depression.  There  is  more  building  going  on  there 
than  in  other  places.  Most  of  the  distress  is  being  experi- 
enced by  people  who  are  loaded  up  with  vacant  property 
which  is  not  good  security  for  loans.  Many  people  bought 
up  the  land  at  high  prices  expecting  to  pay  but  one  install- 
*  Haig,  OTp.  cit.,  p.  69. 


286  THE  TAXATION  OF  LAND  VALUE 

ment  and  to  sell  at  an  advance  before  further  payments 
became  due.  With  the  bottom  out  of  the  real  estate  market 
such  people  are  finding  difficulty  in  paying  interest,  the 
second  installment  and  the  taxes  on  their  property.  The 
Hudson's  Bay  Company  is  experiencing  difficulty  in  its 
attempt  to  collect  the  second  installments  on  the  land  sold 
in  their  great  sale  a  few  years  ago.  Many  persons  would 
gladly  sacrifice  their  first  payment  if  the  company  would 
take  the  lands  off  their  hands;  but  this  the  company  re- 
fuses to  do.  Some  of  the  property  in  town  has  a  value  which 
is  greatly  inflated.  Many  of  the  subdivisions  will  doubtless 
decrease  enormously  in  nominal  value  in  the  near  future."  ^ 
In  Calgary  also,  in  spite  of  the  speculation  promoted  by 
the  discovery  of  petroleum  in  1913,  the  realty  market  has 
been  inactive.^ 

Nevertheless,  admitting  the  hardships  created  by  the 
heavy  taxation  of  land,  especially  to  the  owners  of  vacant 
property,  the  fiscal  effects  have  not  been  serious.^  In  Cal- 
gary, for  example,  the  fact  of  business  depression  is  estab- 
lished by  the  decHne  in  bank  clearings  from  275  millions 
in  1912,  to  247  millions  in  1913,  and  to  201  millions  in 
1914.  At  the  same  time  the  total  tax  base  increased  from 
111  millions  in  1912,  to  133  millions  in  1913,  and  to  nearly 
135  milUons  in  1914;  while  the  total  rate  of  tax  had  to  be 
increased  from  12.5  mills  to  18.75  and  to  20.75  mills  during 
the  same  period.  But  this  increase  in  rate  loses  significance 
when  we  consider  that  12.5  mills  levied  in  1912  was  the 
lowest  rate  since  1895,  and  that  the  rate  of  tax  was  22  mills 
during  1904-06  and  21.5  mills  in  1909.  Moreover,  the  re- 
ceipts from  the  property  tax  were  nearly  twice  as  great  in 
1913  as  in  1912.*  In  Saskatoon,  likewise,  the  net  assess- 
ment (including  business  and  income)  increased  from  36.8 

1  Haig,  op.  cit.,  pp.  105,  106,  118.  =«  /^VZ.,  p.  110. 

'  It  is  necessary  to  point  out  that  in  New  York  City  the  realty  tax  has 
had  similar  serious  effects  during  the  recent  depreciation  in  land  value, 
and  has  given  rise  to  widespread  discontent  with  the  present  tax  system. 

*  Ibid.,  pp.  Ill,  117. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   287 


millions  in  1912  to  56.2  millions  in  1913  and  to  56.6  millions 
in  1914;  the  tax  rate  was  reduced  from  19.5  mills  in  1912 
to  18.4  mills  in  1913  and  to  17.55  mills  in  1914;  while  the  tax 
levies  were  as  follows:  $666,812,  $1,014,667,  and  $993,037 
in  the  three  years,  respectively.* 

Turning  to  the  three  largest  "Single  Tax"  municipali- 
ties, we  find  the  fiscal  conditions  were  somewhat  less  favor- 
able, as  appears  from  the  subjoined  table.^   Yet  only  in 


Taxable  value: 

1912 

1913 

1914 

Tax  rates: 

1912 

1913 

1914 

Tax  levies: 

1912 

1913 

1914 


Vancouver 


$138,557,595 
144,974,525 
150,456,660 

20  mills 
20     " 
22    " 

$3,078,749 
8,217.466 
8,677,160 


Edmonton 


$123,475,070 
188,539,110 
191,283,970 

12  mills 
16     " 
17.5  " 

$1,530,205 
3,471,444 
3,769,970 


Victoria 


$71,670,770 
89,130,150 
89,151.990 


mills 


21 
20 
22.35 


$1,313,248* 
1,466,797* 


*  Receipts  yielded  by  the  land  tax  and  constituting  about  half  of  the  total  budget.  The 
frontage  and  special  assessment  taxes  almost  equaled  the  yield  of  the  land  tax  in  1913. 
See  Haig,  op.  cit.,  pp.  225,  22&-31. 

Vancouver  did  the  tax  rate  reach  the  high  water  mark  for 
that  city.  In  both  Edmonton  and  Victoria  higher  rates 
had  been  levied  in  preceding  years.  The  tax  rate  for  Ed- 
monton was  21.5  mills  in  1901,  for  Victoria,  in  1909,  it  was 
26.5  mills.  There  are,  however,  other  fiscal  data  to  offset 
this  favorable  showing.  Thus,  in  1913,  the  first  time  in 
many  years,  the  budget  account  of  Vancouver  showed  a 
deficit  of  $223,956.  In  Edmonton,  also,  there  was  an 
excess  in  deficit  in  the  general  fund  over  1912  by  about 
$30,000.'  Again,  the  arrears  in  payment  of  taxes  have 
grown  since  1913  to  an  alarming  extent  in  some  of  the  com- 

»  Haig.  op.  cit.,  pp.  58-60.  «  Ibid.,  pp.  92-93;  190-95. 

»  Ibid.,  pp.  88,  180-81. 


288  THE  TAXATION  OF  LAND  VALUE 

munities,  reflecting  the  general  depression  in  land  value.* 
Furthermore,  the  increase  in  the  number  of  appeals  against 
assessments  and  the  greater  value  of  the  assessed  property 
in  1913  and  1914  indicate  an  overvaluation  of  the  land.' 
Overassessment  is  not  an  unusual  occurrence  in  a  time  of 
transition  and  readjustment  of  values.  The  business  de- 
pression, moreover,  interfered  with  the  contemplated 
public  improvements  and  made  retrenchment  necessary 
in  many  communities.'  Nevertheless,  if  we  discount  the 
fiscal  stringency,  which,  we  must  not  overlook,  prevailed 
also  in  other  Canadian  and  in  American  cities  during  the 
same  time,  the  land-value  tax,  not  as  the  single  tax,  how- 
ever, seems  to  have  stood  the  test  even  in  a  period  of  declin- 
ing values.  Nor  must  it  be  overlooked  that  whatever  com- 
plaints may  have  been  voiced  and  demands  made  to  extend 
the  tax  base,  no  municipal  council,  nor  provincial  legisla- 
ture, has  thus  far  been  induced  by  necessity  to  abandon 
the  system  of  exempting  improvements.^ 

*  Cf.  Haig,  op.  cit.,  p.  94.  Sales  of  property  for  taxes,  although  unpopular, 
were  declared  very  generally  throughout  the  western  provinces  during  1914 
and  1915.  The  lax  enforcement  of  law  in  British  Columbia  which  per- 
mits the  taxpayer  to  be  in  arrears  several  years  before  he  can  lose  his 
property  has  been  blamed  for  the  excessive  arrears  recently.  It  was  found 
that  the  redemption  of  properties  sold  for  taxes  in  1914  proceeded  fairly 
and  that  only  a  small  percentage  was  likely  to  be  forfeited  in  British  Co- 
lumbia. At  a  tax  sale  held  in  North  Vancouver  in  1914,  276  parcels  were 
cflfered  for  sale.  Of  this  niunber  all  but  38  parcels  were  redeemed  at  the 
close  of  the  redemption  period  of  one  year.  The  maredeemed  parcels 
were  worth  four  per  cent  of  the  total  arrears,  and  among  them  were 
several  bad  titles.  Again  it  was  reported  that  while  bidding  at  the  sales 
in  British  Columbia  was  brisk  on  good  residential  property,  business 
property  in  most  cases  fell  to  the  municipality.  Canadian  Munid'pal 
Journal  (1915),  pp.  132,  240,  352,  388,  313. 

*  Cf.  Wade,  Single  Tax  in  Western  Canada,  in  National  Tax  Associa- 
tion Proceedings  (1914),  p.  428.  In  British  Columbia,  in  1915,  a  reduc- 
tion of  about  fifty  per  cent  was  made  in  the  undeveloped  districts.  Cf. 
Canadian  Municipal  Journal  (1915),  p.  436;  also  p.  313. 

»  Cf  Ibid.,  pp.  53,  437. 

*  The  fact  that  the  Union  of  Alberta  Municipalities  in  1912  and  191S 
refused  to  vote  for  the  repeal  of  the  system  of  land-value  taxation  is 
likewise  good  evidence  of  the  expediency  of  the  tax.  Cf.  Haig,  op.  cit., 
pp.  80.  84. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   289 

The  experience  with  the  Alberta  Town  Act  of  1912,  how- 
ever, proves  convincingly  the  inexpediency  of  instituting 
the  new  system  during  a  period  of  falling  land  value,  or  of 
introducing  it  too  suddenly  in  static,  unprogressive  com- 
munities. ^  Enough  has  been  said  about  the  economic  con- 
ditions under  which  the  land  tax  can  be  instituted  success- 
fully to  make  explicable  the  embarrassment  of  the  towns 
in  Alberta  when  the  provincial  enactment  was  passed 
providing  for  the  taxation  of  land  value  to  the  exclusion 
of  all  other  taxes  for  local  purposes.  Of  the  forty-six  towns 
affected  by  the  legislation  only  one  had  as  large  a  popula- 
tion as  3,000.  In  some  of  these  local  bodies  the  change  was 
made  without  fiscal  stress;  in  the  majority  of  cases,  how- 
ever, the  untaxing  of  buildings  and  the  exempting  of  per- 
sonalty necessitated  a  considerable  increase  in  the  tax  rate. 
In  some  of  the  towns  the  tax  rate  had  to  be  raised  about 
one  hundred  per  cent  or  more.  For  example,  in  Ponoka, 
the  rate  was  more  than  doubled,  from  eighteen  mills  in 
1911  to  forty-five  and  five-tenths  mills  the  following  year; 
in  Leduc  the  advance  was  from  twenty  to  forty-two  mills. 
Local  conditions  in  these  cases  and  in  others  aggravated 
the  financial  stringency  that  ensued.^  Illegal  means,  such 
as  overassessment,  excessive  frontage  taxes,  other  special 
assessments,  etc.,  had  to  be  resorted  to  in  order  to  raise 
the  requisite  revenue.  In  fact,  the  amendments  to  the  Act 
in  1913,  providing  for  a  frontage  tax,  not  to  exceed  ten  cents 
per  foot  of  frontage,  and  a  business  tax '  are  evidence  of 
the  impracticability  of  a  general  enactment  which  disre- 
gards the  differences  in  local  conditions  and  local  needs. 
In  passing  judgment  upon  this  instructive  experience  in 
Alberta,  it  must  not  be  forgotten  that  the  change  involved 
more  than  the  untaxing  of  buildings,  and  that  the  latter 
is  yet  in  force  in  the  towns. 

*  For  an  excellent  and  detailed  account  of  the  effects  of  this  legisla- 
tion see  Haig,  op.  cit.,  pp.  129  ff. 

*  In  some  towns,  the  exemption  of  the  land  owned  by  the  railway  com- 
panies was  the  cause  of  the  narrow  tax  base.  C/.  ibid.,  p.  14*. 

»  Alberta  (1913),  c.  8,  §  13  (1st  sess.);  c.  22,  §  14  (2d  sess.). 


290  THE  TAXATION  OF  LAND  VALUE 

§  10.  Granted  that  the  fiscal  adequacy  of  the  land  tax 
in  western  Canada  has  been  estabhshed,  its  expediency 
must  be  tested  further  by  the  criterion  of  incidence.  With- 
out attempting  to  discuss  the  justice  of  the  distribution  of 
burden,  it  is  necessary  to  point  out  and  examine  certain 
data  widely  employed  to  show:  (1)  that  under  the  system 
of  local  taxation  in  western  Canada  a  small  percentage  of 
the  population,  the  landowners,  bear  the  whole  burden  of 
the  local  budgetary  requirements;  ^  (2)  that  the  untaxing 
of  buildings  shifts  the  burden  from  the  more  fortunate 
owner  of  the  skyscraper  to  the  owner  of  vacant  property; 
(3)  that  the  rich  owner  therefore  profits  at  the  expense  of 
the  poor  home-owner;  and  (4)  that  the  system  favors  the 
rich  landlord  also  in  that  he  is  exempted  from  more  taxes 
proportionately  than  the  landless  resident.^ 

Briefly,  the  first  point  made  above  is  directed  against 
the  Single  Tax  feature  of  the  system  with  which  we  are 
not  here  concerned.  Whether  improvements  are  taxed  or 
untaxed,  the  number  of  taxpayers  in  a  community,  where,  in 
the  main,  house  and  lot  are  owned  by  the  same  person,  will 
remain  practically  the  same.  It  is  significant,  neverthe- 
less, that  the  percentage  of  property  owners  in  the  western 
municipalities  is  notably  high.  In  Regina,  for  example, 
about  sixty-five  per  cent  of  the  houses  are  inhabited  by  the 
owners,  in  Vancouver  and  Saskatoon  about  sixty  per  cent, 
in  Edmonton  from  sixty  to  sixty-five  per  cent,  in  Calgary 
about  sixty-six  per  cent.'    And  since  many  of  the  tenant 

^  Wade,  Experiments  with  the  Single  Tax  in  Western  Canada,  pp.  12, 
16.  "  But  under  the  so-called  Single  Tax  only  one  citizen  in  five  (in  Van- 
couver) pays  for  the  civic  upkeep,  while  four  in  five  escape  the  burden 
altogether.  Twenty-two  thousand  pay  the  way  for  114,200,  and  92,000 
comfortably  escape  all  responsibility."  The  basis  for  Wade's  comparison 
is  surely  incorrect.  Had  he  compared  the  number  of  taxpayers  with  the 
number  of  voters,  instead  of  with  the  total  population,  the  ratio  would 
have  been  more  faithful  to  the  facts. 

*  "  In  other  words,  about  seventeen-eighteenths  of  the  exemption  is  in 
favor  of  the  wealthier  classes,  and  one-eighteenth  in  favor  of  those  not  so 
well  provided."   Wade,  The  Single  Tax  Failure  in  Vancouver,  pp.  6-6. 

»  Haig,  op.  cii.,  pp.  63,  100. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    £91 

occupiers  may  own  unimproved  or  other  property  in  the 
town  the  percentage  of  taxpayers  even  exceeds  the  high 
percentage  of  home-owners.  With  regard  to  the  second 
contention  raised,  the  untaxing  of  buildings  did  shift  the 
burden  of  the  tax  from  the  owner  of  the  skyscraper  to  the 
owner  of  vacant  property.  But  that  was  exactly  the  pur- 
pose of  the  change.  It  was  intended  to  make  the  owner  of 
unimproved  land  contribute  a  larger  quota  to  the  local 
revenue,  either  because  such  owner  was  often  a  non-resi- 
dent, pocketing  the  value  increment  of  the  land,  or  was 
a  resident  speculator.  The  latter,  indeed,  convinced  of  the 
beneficent  effects  of  the  system  on  the  community,  which 
would  be  reflected  in  the  rapidly  rising  land  values,  was 
himself  responsible  for  the  institution  of  land-value  taxa- 
tion. As  a  matter  of  fact,  in  times  of  rising  values,  the 
speculator  was  affected  only  slightly  by  the  added  burden. 

The  charge  that  the  exemption  of  improvements  im- 
poses a  greater  burden  on  the  home-owner  than  under  the 
realty  tax  can  apply  only  to  owners  of  buildings  the  value 
of  which  falls  below  the  average  ratio  prevailing  between 
the  value  of  the  improvements  and  that  of  the  site.  Where 
that  ratio  is  about  thirty  per  cent  or  less  as  in  the  western 
towns,  very  few  resident  owners  have  been  adversely 
affected  by  the  change.  In  fact,  we  have  seen  that  in  very 
many  cases,  the  untaxing  of  buildings  did  not  even  neces- 
sitate a  higher  tax  rate.  Finally,  the  charge  that  the  exemp- 
tion of  the  wealthier  class  from  taxation  is  relatively 
greater  than  that  of  the  working  class  loses  weight  when  we 
reflect  that  (1)  under  the  Single  Tax  system  the  landless 
workman  escapes  all  local  taxes,  and  that  (2)  the  relief  from 
taxation  afforded  to  owners  of  business  premises  and  build- 
ings was  expected  to  revert  indirectly  to  the  community 
in  the  form  of  social  and  economic  benefits.  This  leads  us 
to  inquire  what  the  economic  effects  have  been. 

§  11.  In  venturing  to  trace  in  social  phenomena  the 
effects  of  a  tax,  the  general  principle  must  not  be  lost  sight 


292  THE  TAXATION  OF  LAND  VALUE 

of,  namely,  that  numerous  forces  are  at  work  in  society, 
and  that  social  phenomena  are  the  resultant  of  the  interplay 
of  a  variety  of  causes.  This  was  pointed  out  in  the  case  of 
the  Australasian  taxes.  Indeed,  so  similar  are  the  con- 
ditions in  both  countries,  that  the  conclusions  with  regard 
to  the  social  and  economic  effects  of  the  tax  in  Australasia 
hold  true  in  the  case  of  the  Canadian  system.  So  remark- 
able has  been  the  development  of  the  towns,  so  great  the 
influx  of  population,  so  favorable  the  industrial  oppor- 
tunities, so  rich  the  natural  resources,  that  the  influences 
of  the  tax  on  land  value,  whether  salutary  or  otherwise, 
have  been  scarcely  noticeable  or  traceable. 

Nevertheless,  it  is  generally  admitted  even  by  the  oppo- 
nents of  the  system^  that  the  exemption  of  improvements 
has  given  an  impetus  to  building  operations  in  western 
Canada.  In  the  provinces  this  opinion  is  especially  gen- 
eral; and  the  prodigious  increase  in  building  operations  in 
recent  years,  especially  in  the  localities  where  all  improve- 
ments are  exempt,  is  attributed  in  part  to  this  cause.  ^  A  few 
examples  showing  the  great  expenditures  made  for  build- 
ing purposes,  although  not  necessarily  evidence  of  the  in- 
fluence of  the  tax  system,  will  disclose  the  general  situation 
of  prosperity  and  rapid  development  of  the  western  com- 
munities before  the  depression  which  began  in  1913. 

While  the  real  cause  of  this  unmistakable  trend  in  build- 
ing operations  Ues  in  the  enormous  increase  in  population, 
it  is  the  costliness  of  the  structures,  not  the  number,  that 
may  reflect  the  influence  of  the  exemption  of  improvements 
from  taxation.  Take  Saskatoon,  for  example.  In  1911,  the 
population  was  about  12,000;  yet  the  amount  expended  on 

*  Cf.  Bullock,  "  Single  Tax  in  Vancouver,"  in  the  New  York  Evening 
Post,  June  27,  1914.  Also  Wade,  The  Single  Tax  Failure  in  Vancouver, 
p.  13. 

*  Letters  received  by  the  writer  from  Medicine  Hat,  Moose  Jaw, 
Prince  Albert;  seeSingle  Tax  Review,  May-June,  1911,  pp.  10  jf.,  on  effect 
of  the  tax  on  the  building  trade  in  Vancouver,  and  for  Edmonton,  see 
ibid.,  November-December,  1910,  p.  48. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   293 


TABLE  SHOWING  THE  COST  OF  NEW  BUILDINGS  IN  CER- 
TAIN PROGRESSIVE  TOWNS  IN  WESTERN  CANADA » 


Year 

Vancouver 

Edmonton 

Winnipeg 

Calaary 

Saskatoon 

Victoria 

1907.... 
1908.... 
1909.... 
1910.... 
1911.... 
1912.... 
1913.... 

$5,632,744 
5,950,893 
7,258,565 
13,150,365 
17,652,642 
19,388,322 
10,424,197 

$2,280,210 
2,549,847 
2,128.166 
2,159,106 
3,672,260 

14,446,810 
9,242,450 

$6,309,950 
5,513,700 
9,226,325 
15,116.450 
17,550,400 
20,563,760 
18.593,350 

$2,094,264 
1.004.520 
2,420.450 
5,589.594 
12,907.638 
20.394.220 
8,619,653 

$377,211 
115,625 
1,002,055 
2,817,771 
5,028,366 
7,640,530 
2.563.885 

$1,490,250 
1,314,240 
1,773,420 
2,373,045 
4,126,315 

10,666,206 
4,037,092 

buildings  in  five  years,  1907-11,  was  over  nine  million 
dollars.^  But  especially  noteworthy  are  the  enormous  sums 
expended  on  new  structures  during  1911-12,  over  $12,600,- 
000!  These  were  years  when  the  reduction  was  made  in 
the  assessment  on  improvements.  But  that  this  reduction 
was  not  alone  responsible  for  the  building  activity  is  clear, 
for  the  activity  slackened  considerably  in  1913  in  spite  of 
a  further  ten  per  cent  reduction  on  the  assessment  of  im- 
provements.' The  rapid  development  of  Saskatoon  is 
borne  out  also  by  the  following  quotation:*  "The  city, 
although  only  ten  years  of  age,  has  gotten  past  the  shanty 
stage.  Brick,  stone,  concrete,  steel  are  the  materials  used 
in  the  construction  of  its  houses."  In  Vancouver,  in  1910, 
the  first  year  under  complete  land- value  taxation,  the  in- 
crease in  the  number  of  building  permits  was  about  ten 

*  Vancouver's  Financial  and  Departmental  Reports  (1912) ;  Winnipeg's 
Municipal  Manual  (1913);  Annual  Report  of  Calgary  (1912);  British 
Columbia  Year  Book  (1911),  p.  322;  Canadian  Municipal  Journal,  July 
1913,  p.  252  et  passim;  Eighth  Annual  Report  of  the  Department  of  Agri- 
culture  of  the  Province  of  Saskatchewan  (1912),  p.  135. 

*  In  1912,  the  population  had  more  than  doubled,  i7,5i7  persons,  and 
there  were  1783  permits  granted  for  new  buildings.  It  is  noteworthy  that 
in  all  the  mimicipalities  of  Saskatchewan,  in  1912,  the  total  value  of  the 
new  buildings  was  $33,270,781,  as  compared  with  $17,857,308  in  1911. 
Eighth  Annual  Report  of  the  Department  of  Agriculture  of  the  Province  of 
Saskatchewan  (1912),  p.  135. 

*  By  that  time  the  business  depression  had  set  in  and  may  have  been 
a  counteracting  influence  in  the  situation.    Cf.  Haig,  op.  cit.,  p.  270. 

*  Canadian  Municipal  Journal,  December,  1913,  p.  484. 


294 


THE  TAXATION  OF  LAND  VALUE 


per  cent,  the  growth  in  the  value  of  building  operations  was 
about  eighty-one  per  cent.  The  high  per  capita  value  of 
new  buildings  in  1912,  the  crest  of  the  flush  period,  is 
shown  in  the  subjoined  table:  ^ 

TABLE  SHOWING  THE  RELATION  OF  BUILDING  OPERA- 
TIONS TO  POPULATION  AND  TO  IMPROVEMENT  EX- 
EMPTION  IN   1912 


Municipality 

Population 

Value  of 

new 
buildings 

Taxable  per- 
centage of 
improvements 

Value  of 

neti 
buildings 
per  capita 

Vancouver 

Edmonton 

Winnipeg 

Calgary 

Saskatoon 

Victoria 

122,100 
53,383 

166,553 
70,000 
27,527 
65,000 

$19,388,322 
14,446,819 
20,563,750 
20,394,220 
7,640,530 
10,666,206 

66% 
25 

$158.8 
270.6 
123.4 
291.3 
277.5 
164.0 

It  is  perhaps  safe  to  attribute  the  stimulus  to  building, 
in  part  at  least,  to  the  exemption  of  improvements.  What 
is  to  be  said,  however,  of  the  desirability  of  such  an 
effect?  Statistics  of  the  number  of  vacant  dwellings  in  the 
western  cities  are  not  available.  Nevertheless,  we  may 
agree  with  an  authority  that  "Vancouver  is  badly  over- 
built." 2  About  the  condition  in  the  other  municipalities  data 
are  lacking.  Now,  on  the  part  of  the  building  operator  ' 
excessive  overbuilding  cannot  be  continued  indefinitely. 

^  That  other  factors  entered  in  as  well  as  the  exemption  of  improve- 
ments is  seen  in  the  wonderful  progress  of  Calgary,  where  although  im- 
provements are  liable  to  taxation  to  twenty-five  per  cent  of  their  value, 
and  although  the  population  was  only  slightly  more  than  half  that  of  Van- 
couver, the  value  of  its  buildings  exceeded  by  one  million  dollars  that  in 
Vancouver. 

*  Haig,  op.  cit.,  p.  204. 

•  In  western  Canada  the  builder  is  usually  not  the  speculator,  as  in 
Grerman  cities,  operating  except,  for  a  small  margin,  with  borrowed  capi- 
tal. Loans  on  real  estate  are  conservatively  financed  in  the  western 
provinces.    C/.  ibid.,  p.  274. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA    295 

It  is  comprehensible  how  during  a  period  of  expansion 
the  expectancy  of  a  larger  influx  of  immigrants,  together 
with  the  relief  from  taxation,  could  induce  an  overproduc- 
tion of  structures,  but  as  in  all  forms  of  overspeculation 
the  collapse  must  follow. 

From  the  standpoint  of  the  tenant,  on  the  other  hand, 
even  in  Vancouver  the  large  supply  of  vacant  houses  ^  did 
not  prevent  exorbitant  rentals  during  the  boom;  nor  an 
inordinate  decline  in  rents  during  the  depression.  The 
movement  of  rents,  indeed,  must  be  explained  on  other 
grounds  than  the  overstimulation  of  building.  With  the 
daily  influx  of  new  settlers  seeking  dwellings,  and  with 
speculation  in  property  rife,  the  tendency  for  rents  to 
increase  is  easily  explained.^  The  opposite  tendency  ensued 
with  the  advent  of  stagnancy  in  the  land  market  and  with 
the  exodus  of  people  seeking  employment  elsewhere.  In 
so  far,  then,  as  other  causes  operated,  the  tax  on  land  value 
at  the  rates  levied  was  ineffective  in  determining  rents  and 
the  market  price  of  the  land.  The  determination  of  the  inci- 
dence of  the  tax  is  likewise  impossible,  for  in  a  time  of 
fluctuating,  inflated  land  value  the  tenant  probably  pays 
part  of  the  artificially  screwed-up  value,  including  the 
tax.  In  a  period  of  declining  values,  on  the  other  hand,  the 
owner  is  in  the  weaker  position  and  is  less  likely  to  shift 
the  tax. 

Again,  whether  the  impetus  to  building  is  to  be  judged 
salutary  or  deleterious  will  depend  on  the  kind  of  con- 
struction promoted.   Was  the  erection  of  residence  houses 

^  There  has  been  a  decrease  in  the  population  of  Vancouver  since 
1913.  The  number  fell  from  122,000  in  1912,  to  114,220  in  1913,  and  to 
106,110  in  1914.  It  may,  therefore,  be  that  Dr.  Haig's  statement  and  Mr. 
Wade's  statistics  of  overbuilding  do  not  apply  to  1912  at  all.  Cf.  Haig, 
op.  cit.,  pp.  204,  208. 

*  Statistics  gathered  from  the  three  principal  cities  of  Saskatche- 
wan show  an  increase  in  the  rent  for  an  ordinary  furnished  room  in  a 
private  house  from  $10  in  1910  to  $12  and  $14  per  month  in  1912. 
Cf.  Eighth  Annual  Report  of  the  Department  of  Agriculture  (Sask.,  1912), 
p.  161. 


896  THE  TAXATION  OF  LAND  VALUE 

stimulated,  or  of  tenements?  And  how  was  the  general 
condition  of  congestion  affected?  In  Vancouver  there 
were  constructed,  in  1912,  217  apartment  houses  with  a 
value  of  over  six  millions,  and  2226  dwelling-houses  costing 
over  three  millions;  in  the  same  year  in  Victoria  were 
erected  1312  one-  to  two-story  dwellings,  exclusive  of  brick 
or  concrete  buildings,  and  32  apartment  houses.^  Even 
without  available  data  for  comparison,  the  large  number  of 
new  dwelling-houses  in  a  single  year  would  lead  one  to  think 
that  the  incentive  to  residence  building  was  no  less  than 
to  apartment  construction.  Some  evidence  was  quoted, 
e.g.,  the  subdivision  of  lots,  and  the  reduction  in  the  num- 
ber of  purchasers  of  lots  for  garden  and  yard  purposes  in 
Vancouver,^  to  show  a  more  economical  use  of  land  as  a  re- 
sult of  the  tax.  Whether  this  tendency  of  a  more  intensive 
use  of  the  land  was  evident  before  the  depression  was  not 
stated.  On  the  other  hand,  the  phenomenon  of  narrow, 
twenty-five  foot  lots  in  some  of  the  cities  has  been  attrib- 
uted to  local  conditions.  For  example,  "The  high  cost  of 
land  and  the  necessity  of  being  served  by  local  improve- 
ments has  operated  to  cause  Regina  to  be  less  scattered. 
.  .  .**  In  Victoria,  on  the  contrary,  a  "Single  Tax"  city,  and 
with  a  relatively  smaller  area  and  greater  density  of  popu- 
lation than  the  other  cities  of  western  Canada,  the  prevail- 
ing standard  lot  is  the  fifty-foot  parcel.'  In  short,  conges- 
tion not  being  a  problem  in  these  western  communities, 
little  can  be  gathered  with  regard  to  this  matter  which 
reflects  the  effect  of  the  land  tax. 

§  12.  As  to  the  other  results  which  logically  might  have 
been  expected  to  follow,  even  less  can  be  proved  from  the 
economic  conditions  in  the  western  provinces.  Taking  up 
the  question  of  speculation  in  land,  we  will  ignore  the  pres- 
ent unfavorable  status  of  the  land  market  as  it  is  causally 

»  Haig,  op.  cii.,  pp.  200,  23S-S4. 

»  Ibid.,  p.  197. 

»  Ibid.,  pp.  48,  236. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   297 

unrelated  to  the  land  tax.  Until  1913,  then,  it  would  have 
been  impossible  to  show  that  the  speculator  had  been  de- 
terred in  his  operations  in  western  Canada  on  account  of 
the  land  tax.  For  it  is  not  surprising  to  find  speculation 
rampant  in  a  country  where  the  appreciation  of  the  value 
of  land  has  been  so  extraordinary.  Nor  will  the  specula- 
tion mania  ^  cease,  so  long  as  the  tax  fails  to  appropriate 
the  entire  profit.  Thus,  while  it  may  be  assumed  that  the 
increased  building  operations  are  a  sign  of  the  better  utiliza- 
tion of  town  land,  the  tax  has  surely  not  been  prohibitive 
of  property  in  vacant  land,  because  the  enormous  value 
increment,  the  result  of  overcapitalization  of  the  land, 
makes  the  payment  of  a  two  per  cent  tax,  or  less,  a  trifling 
matter  in  the  calculations  of  the  speculator.  Therefore  it  is 
not  surprising  that  in  spite  of  the  tax  there  are  26,763 
vacant  lots  in  Calgary,  Alberta,  which  have  sewerage  and 
water  facilities;  yet  working  men  are  compelled  to  go  out- 
side the  city  limits  to  buy  land  on  the  prairie  for  homes.^ 
As  an  official  said,  at  times  of  land  "booms"  and  "ficti- 
tious" values,  the  assessment  is  seldom  considered.  Nor 
can  the  disintegration  of  the  large  landholdings,  to  which 
the  following  quotation  is  testimony,  be  attributed  to  the 
influence  of  the  taxing  system  alone.  "  Many  of  the  most 
fertile  valleys  were  monopolized  by  a  few  individuals,  who 
owned  from  1000  to  30,000  acres.  .  .  .  These  big  estates 
are  now  being  subdivided  and  sold  in  small  parcels,  with 
the  result  that  small  farms  and  orchards  are  becoming 
numerous  on  ground  which  was  held  for  years  as  pasture 
or  merely  for  purposes  of  speculation.  The  breaking-up  of 
these  large  ranches  is  one  of  the  most  hopeful  signs  of  the 

*  The  treasurer  of  Brandon,  Man.,  writes:  "In  this  part  of  the  world 
we  are  subject  to  periods  when  there  is  a  big  demand  for  land  and  very 
large  sums  of  money  change  hands  in  the  speculation  in  land.  At  such 
times  as  these  every  one  is  land  mad  and  lands  change  hands  in  many 
cases  at  ridiculous  prices."  See  also  for  description  of  enormous  realty 
transactions,  London  Ecanomui,  May  3,  1913,  p.  1039. 

*  Canadian  Municipal  Journal,  August,  1914,  p.  832. 


298 


THE  TAXATION  OF  LAND  VALUE 


times."  *  On  the  whole,  nevertheless,  speculation  con- 
tinued unabated  as  before,  and  in  spite  of  the  institution  of 
the  new  system  of  taxation;  but  absentee  owners  and  spec- 
ulators in  vacant  property  contributed  a  greater  share  than 
before  to  the  pubHc  revenue. 

The  increase  in  wages  and  the  unusually  high  rates  of 
wages  in  western  Canada  before  1913  ^  can  be  only  re- 
motely, if  at  all,  traceable  to  the  operation  of  the  land  tax. 
Wages  in  the  building  trade  had  undoubtedly  advanced  on 
account  of  the  activity  in  that  trade.  So  had  the  wages  of 
common  labor,  both  in  the  towns  and  on  the  farms.  How- 
ever, since  the  prices  of  food  and  lodging  had  also  ad- 
vanced, and  since  labor  was  scarce,  the  increase  in  wages 
must  be  attributed  rather  to  the  general  prosperity  of  the 
country,  which  the  tax  on  land  value  may  have  slightly, 
if  at  all,  furthered.  On  the  other  hand,  if  the  building 
activity  is  attributed  at  all  to  the  land  tax,  the  latter  must 
also  bear  the  blame  for  the  abnormal  condition  of  unem- 

*  Bureau  of  Provincial  Information,  Agriculture  in  British  Columbia 
(1912),  Official  Bulletin  10,  p.  14. 

*  The  following  table,  from  the  Eighth  Annual  Report  of  the  Depart- 
ment of  Agriculture  (Sask.,  1912),  p.  162,  shows  the  increase  in  wages  in 
Saskatchewan  since  1910:  — 


Trade  or  calling 


Bricklayera 

Carpenters 

Electricians 

Plumbers 

Plasterers 

Painters 

Woodworkers 

Building  laborers. . . 
Common  laborers.. 

Teamsters 

Printers 

Machine  operators. 

Store  Clerks 

Stenographers 

Domestics 

Farm  laborers 


1910 

1911 

191S 

65  fc 

67% 

70  A 

40  A 

40 

45* 

35  fc 

37% 

40  A 

50h 

551/3 

60  h 

mh 

65 

671/2  A 

35  h 

35 

40 /i 

30h 

35 

35  h 

22  h 

22 

25  h 

20h 

20 

22Vah 

55  m 

65 

66  m 

18  10 

19 

21  w 

22  u) 

24 

26  to 

18  w 

19 

20  to 

55  m 

60 

65  m 

18  »» 

18 

20  m 

200]/ 

200 

250  J/ 

Per  cent  tncreate 
1912  over  1910 


15 
12 
14 
20 
12 
14 
16 
14 
11 
18 
17 
14 
11 
18 
11 
25 


h,  cents  per  hour;  to,  dollars  per  week;  m,  dollars  per  month;  y,  dollars  per  year. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   299 

ployment  in  the  building  trades  that  succeeded  the  flush 
of  prosperity.^ 

We  may  conclude,  then,  with  regard  to  the  expediency 
of  the  tax  as  a  social  reform  measure  that  although  ineffec- 
tive as  a  total  reform,  the  tax  may  be  salutary  in  its  general 
influence.  Its  real  value  lies,  however,  in  its  fiscal  charac- 
ter. As  a  fiscal  measure,  the  tax  has  responded  adequately 
to  the  needs  of  the  communities,  since  it  is  not  only  a  pro- 
ductive source  of  revenue,  but  also  since  it  is  least  burden- 
some to  industry  and  capital. 

§  13.  The  fact  that  the  adoption  of  the  tax  in  the  west- 
ern provinces  has  spread  and  that,  even  in  the  recent  dire 
fiscal  stress  ^  no  attempt  to  rescind  the  measure  has  any- 
where been  made,  is  further  testimony  of  its  expediency.' 
The  question  arises,  however,  will  its  adoption  be  confined 
to  those  provinces  merely?  Hitherto,  or  rather  until  sev- 
eral years  ago,  the  older,  eastern  provinces  stood  solidly 
against  the  principle  of  the  tax.*  Before  the  depression, 
however,  there  were  signs  that  the  popularity  of  the  new 

*  In  the  spring  of  1913,  usually  the  busy  season  for  the  building  trades, 
about  half  the  union  workmen  were  said  to  be  out  of  emplojinent  in 
Vancouver.   Cf.  The  British  Columbia  Federalionist,  March  21,  1913. 

'  The  popularity  of  the  tax  and  the  faith  in  its  expediency  are  shown  by 
the  following  incident.  During  the  "hard  times"  in  Vancouver  recently, 
an  alderman  mustered  up  sufficient  courage,  the  narrator  says,  to  suggest 
a  tax  on  twenty-five  per  cent  of  the  value  of  improvements.  But  his  sug- 
gestion did  not  meet  with  approval  in  the  council.  Canadian  Municipal 
Journal,  May,  1914,  p.  172. 

'  That  numerous  complaints  should  arise  against  the  exemption  of 
improvements,  especially  in  a  time  of  falling  values,  is  to  be  expected. 
The  significant  fact  that  cannot  be  overlooked  is  that  no  action  has  been 
taken  to  change  the  system,  where  legislation  is  so  simple.  Of  all  the 
cities,  Vancouver  has  perhaps  sufiFered  most  from  the  depression,  and  it  is 
there  that  discontent  with  a  tax  which  falls  so  heavily  on  the  landowner 
should  be  most  widespread.  Yet  in  this  city  Mr.  Taylor,  a  pronounced 
adherent  of  the  system,  has  been  reelected  mayor  time  after  time,  and 
again  in  1915,  in  spite  of  the  successful  effort  to  unseat  him.  (Cf. 
Canadian  Municipal  Journal,  April,  1915,  p.  132.)  The  fact  that  his  op- 
posing candidate,  Hepburn,  also  favored  the  system  of  taxation  shows 
all  the  more  the  general  popularity  of  the  land  tax. 

*  Cf.  Canadian  Municipal  Journal,  October,  1912,  p.  388. 


800  THE  TAXATION  OF  LAND  VALUE 

taxing  system  was  growing  even  in  the  older  communities. 
Nevertheless,  though  public  sentiment  may  be  strongly 
in  favor  of  exempting  improvements  in  part  at  least,  great 
opposition  must  be  expected  from  the  more  conservative 
provincial  legislatures.  Thus  in  Ontario,  250  municipali- 
ties have  abeady  petitioned  the  legislature  in  vain  to  be 
authorized  to  reduce  the  tax  on  improvements  as  compared 
with  that  on  land.^  The  organizations  that  petitioned  for 
the  change  in  Ontario  were:  The  Canadian  Manufactur- 
ers' Association,  the  Toronto  Board  of  Trade,  the  Corpora- 
tion of  the  City  of  Toronto,  the  Toronto  District  Trades 
and  Labor  Council,  the  Dominion  Grange  of  Canada.  ^  In 
Toronto,  too,  popular  judgment  favors  the  change.  Thus, 
by  a  vote  of  twenty-three  to  one  the  city  council  submitted 
the  following  proposition  to  a  referendum  vote:  "Are  you 
in  favor  of  applying  for  legislation  to  assess  buildings,  busi- 
ness tax  and  incomes  on  a  lower  basis  than  land?"  The 
popular  vote  stood  about  four  to  one  in  favor  of  the  pro- 
posal.^ It  is  significant  also  in  this  connection  that  the 
Union  of  New  Brunswick  Municipalities  adopted  a  resolu- 
tion in  1911  favoring  the  land-value  tax  as  the  only  source 
of  local  revenue.*  New  Brunswick,  situated  on  the  eastern 
coast  of  Canada,  lacks  the  conditions  which  give  rise  to 
great  land- value  increments  such  as  appear  in  the  western 
provinces.  For  example,  the  increase  in  population  during 
the  decade,  1901-11,  was  in  New  Brunswick  only  6.3  per 

^  Canadian  Municipal  Journal,  October,  1911,  p.  407.  "In  the  last 
couple  of  years  attempts  have  been  made  to  permit  any  municipality  to 
reduce  the  tax  rate  on  improvements  if  the  property  owners  wished  it, 
and  petitions  asking  for  this  have  been  presented  to  the  Legislature  .  .  . 
signed  by  over  250  municipalities,  200  newspapers  and  300  labor  organi- 
zations; they  have  been  endorsed  by  most  of  the  agricultural  papers  and 
by  over  100  business  firms  in  Toronto."  A.  B.  Farmer,  Tax  Reform, 
a  speech  delivered  before  the  Union  of  Canadian  Municipalities. 

'  Taken  from  a  circular  issued  by  the  Tax  Reform  League  of  Eastern 
Canada  (Toronto). 

'  Dixon,  op  cit.,  p.  4. 

*  Canadian  Municipal  Journal,  February,  1912,  p.  50,  and  December, 
1911,  p.  478. 


MUNICIPAL  TAXATION  IN  WESTERN  CANADA   301 

cent,  as  compared  with  119.6  per  cent  in  British  Columbia, 
413  per  cent  in  Alberta,  439.4  per  cent  in  Saskatchewan, 
and  78.5  per  cent  in  Manitoba.^  Furthermore,  as  was 
pointed  out  by  Professor  Kierstadt,  while  land  in  Van- 
couver was  worth  two  and  one-third  times  the  improve- 
ments, the  improvements  in  Fredericton,  N.B.,  were  val- 
ued at  one  and  one-half  times  the  land.^  The  fact,  there- 
fore, that  the  New  Brunswick  municipalities  favor  the 
exemption  of  improvements  from  taxation  is  especially 
noteworthy.  In  Nova  Scotia,  a  bill  making  the  partial 
exemption  of  improvements  and  personalty  optional  with 
the  local  body  passed  the  Lower  House  several  times  but 
was  rejected  in  the  Legislative  Council.' 

»  6000  Facts  about  Canada  (1913  edition),  p.  8. 
'  Canadian  Municipal  Journal,  December,  1912,  p.  490. 
»  Bill  129  (1914),  "The  Optional  Assessment  Act."  CJ.  Haig,  op.ciL, 
p.  13. 


CHAPTER  Vn 

THE  TAX  IN  ITS  FISCAL  ASPECT 

§  1.  After  the  examination  in  the  preceding  chapters 
of  the  systems  of  land-value  taxation  in  operation,  we 
must  proceed  by  synthesis  to  discover  the  common  essence 
of  the  various  forms  of  the  land  tax,  to  find  its  relation 
to  the  other  taxes,  and  to  set  forth  its  underlying  prin- 
ciples from  a  fiscal  standpoint.  To  reduce  the  protean  land 
taxes  to  a  homogeneous  form  —  to  the  land- value  tax  — 
is  not  simple.  Indeed,  the  possibility  of  classing  the  value- 
increment  duty  with  the  tax  on  the  capital  value  of  land, 
or  the  mineral-rights  duty  with  either  of  the  former,  may 
well  be  doubted.  In  one  case  the  base  of  the  levy  is  the 
value  increment,  in  another  the  capital  value,  in  a  third 
the  rental  value;  in  one  case  the  tax  is  direct  and  in  another 
indirect;  sometimes  it  is  proportional  and  sometimes  pro- 
gressive; in  certain  cases  it  has  occurred  as  a  general  and 
in  other  cases  as  a  special,  or  ancillary  charge.  Neverthe- 
less, it  may  be  maintained  that  certain  essential  characteris- 
tics appear  in  the  land-value  tax  under  all  the  divergences 
of  form.  The  basis  of  taxation  in  all  these  systems  is  land; 
the  essential  or  common  purpose  is  to  tax  the  realized  or 
realizable  income  accruing  from  the  ownership  of  such 
land,  and  to  exempt  income  derived  from  the  employment 
of  capital  and  labor  expended  for  improvements.  Discrep- 
ancy makes  its  appearance  in  the  methods  and  means  of 
assessing  the  income  and  of  levying  the  tax. 

If  we  inquire  what  has  determined  the  choice  of  method, 
and  which  of  the  various  systems  is  the  most  to  be  desired, 
it  will  be  found,  first,  that  the  proponents  of  the  taxes  on 
land  value  in  the  several  countries  have  followed  the  line 
of  least  resistance;  secondly,  that,  inasmuch  as  social  as 


THE  TAX  IN  ITS  FISCAL  ASPECT  808 

well  as  fiscal  considerations  are  often  the  determining  fac- 
tors in  the  introduction  of  the  tax,  fiscal  expediency  alone 
cannot  determine  what  form  will  be  most  expedient.  We 
shall  find,  for  instance,  that  in  the  British  colonies  the  tax- 
ation of  the  unimproved  value  of  the  land  on  the  basis  of 
its  capital  value  is  not  only  most  expedient  economically, 
but  is  most  consistent  with  the  democracy  of  those  colonies; 
that  in  Germany  the  value-increment  tax  founded  on  the 
system  of  taxing  "  Konjunktur  "  gains  ^  conforms  best  with 
the  prevailing  system  of  taxing  income  ^  rather  than  prop- 
erty; that  in  England,  where  the  taxation  of  capital  value 
has  hitherto  been  unpopular,  if  not  obnoxious,  a  plurality 
of  duties  —  an  almost  fantastic  adaptation  of  a  transplanted 
system  of  taxation  —  was  deemed  necessary  to  effect  the 
purpose  in  view. 

Again  we  find  that  where  the  purpose  was  fiscal  rather 
than  social  or  economic,  the  proportional  direct  levy  oi 
unimproved  value  was  found  most  productive  and  most 
expedient;  that  where  the  purpose  was  social,  where,  for 
example,  the  disintegration  of  large  estates,  and  the  dis- 
couragement of  speculation  and  absenteeism  were  sought, 
the  progressive  scale  of  rates,  or  the  especially  discrimina- 
tory undeveloped  land  tax,  was  most  effective;  that  where 
the  ethical,  or  economic  motive,  the  question  of  the  "un- 
earned increment"  was  uppermost,  the  indirect  mode  of^ 
levy,  i.e.,  on  occasions  when  the  increment  would  accru^ 
was  adopted;  and  that  where  a  particular  system  of  h 
tenure,  such  as  the  leasing  system,  had  taken  deep  root,  as 
in  England,  a  new  form  of  levy  had  to  be  devised,  namely, 
the  reversion  duty. 

^  See  supra,  chapter  iv,  §  3. 

*  That  the  German  system  is  to  tax  the  increment  which  has  actually 
accrued  at  the  time  it  is  appropriated  is  seen  from  the  fact  that  the 
occasion  of  the  levy  of  duty  is  on  transfer  of  property  by  sale.  This  is  in 
contrast  with  the  English  system  which  levies  a  duty  on  a  hypothetical 
or  anticipated  increment,  as,  in  the  reversion  duty,  undeveloped-land 
duty,  and  value-increment  duty  in  case  of  death,  or  lease,  etc. 


d04  THE  TAXATION  OF  LAND  VALUE 

Assuming  that  in  spite  of  the  differences  in  form  and 
purpose,  these  various  imposts  are  essentially  the  same  in 
principle,  it  is  necessary  to  consider  the  tax  on  land  value 
in  the  light  of  fiscal  theory  and  of  modern  thought  gener- 
ally. 

§  2.  As  to  the  place  of  the  land  tax  in  the  general  cate- 
gories of  taxation,  it  is  evident  that  the  tax  on  land  value 
belongs  to  the  genus  property  tax,  and  to  the  species  real 
property  tax.  As  already  set  forth,  ^  the  direct,  proportional 
tax  on  land  value  is  merely  a  modified  form  of  the  realty 
tax.  This  was  made  clearly  evident  in  the  discussion  of  the 
Canadian  system.  As  for  the  value-increment  tax,  al- 
though the  method  of  assessment  and  collection  varies 
from  the  usual  methods  of  taxing  real  property,  it  is  never- 
theless like  the  realty  tax  in  that  the  basis  of  taxation,  the 
income  accruing  from  landed  property,  is  the  same  in 
both  cases.  But  just  as  the  real  property  tax  is  differenti- 
ated from  the  general  property  tax  by  the  elimination  of 
personalty  from  taxation,  so  the  tax  on  land  value  is  differ- 
entiated similarly  from  the  real  property  tax  by  the  exemp- 
tion of  improvements  from  taxation. 

A  second  criterion  of  classification  of  taxes  concerns  their 
relative  importance  in  the  fiscal  system  —  whether  they  are 
principal,  subsidiary,  or  single  sources  of  revenue.  If  by  a 
"single  source"  is  meant  one  covering  at  once  all  federal, 
state,  and  local  needs,  it  is  to  be  remarked  that  there  is  no 
single  tax  in  existence  anywhere;  and  according  to  fiscal 
authorities  a  single  tax,  whether  the  base  be  general  income, 
land  value,  or  something  else,  is  for  a  variety  of  reasons 
fiscally  undesirable.^  For  municipal  purposes  the  land  tax 
in  certain  Canadian  and  Australasian  communities  consti- 
tutes the  chief  source  of  public  income,  although  not  the 
sole  source,  since  as  we  have  seen,  licenses  and  subsidies 

^  See  chapter  i,  §  7. 

'  Cf.  Seligman,  Essays  in  Taxation  (1913),  chapter  iii;  Bastable, 
Public  Finance  (1903),  pp.  343/;  Cossa,  Taxation  (1889),  pp.  128/. 


THE  TAX  IN  ITS  FISCAL  ASPECT  305 

from  the  provincial  government  supplement  the  local 
revenue.  As  for  the  value-increment,  undeveloped  land, 
reversion,  and  mineral-rights  duties,  the  intention  has 
always  been  to  make  these  merely  subsidiary  sources  of 
revenue.  In  fact,  the  nature  of  these  forms  of  the  tax  pre- 
vent them  from  becoming  the  prevailing  taxes,  since  their 
yield  is  uncertain  and  inelastic.  Thus,  the  revenue  from  the 
undeveloped  land  duty,  unless  the  purpose  of  the  tax  is 
frustrated,  should  diminish  in  amount  as  the  land  becomes 
better  utilized.  It  would  seem  that  only  the  direct  pro- 
portional tax  is  adapted  to  a  general  levy,  that  is  for  general 
purposes,  while  the  revenue  accruing  from  the  other  forms 
of  the  land-value  tax  has  been  sometimes  devoted  to  a 
special  fund,  as,  for  example,  for  municipal  improvements  ^ 
or  old-age  pensions.  With  the  exception  of  one  form  of  the 
tax,  then,  the  direct  proportional,  the  tax  on  land  value 
constitutes  a  subsidiary  impost.  Indeed,  wherever  levied, 
the  accruing  revenue  constitutes  a  trifling  proportion  of 
the  total  public  income. 

§  3.  Taxes  may  further  be  classified  according  to  the 
civic  division,  local,  state,  or  national,  by  which  and  for 
whose  use  they  are  raised.  Great  emphasis  is  laid  by  au- 
thorities on  public  finance  upon  the  problem  of  separating 
the  sources  of  revenue  according  to  their  suitabiHty  for 
local,  state,  or  federal  purposes.^  It  is,  therefore,  necessary 
to  show  to  what  extent,  if  at  all,  the  tax  on  land  value  con- 
forms to  the  most  authoritative  scheme  of  separation. 
The  tax  on  land  value  is  in  essence  a  tax  on  real  property. 
Now,  whatever  difference  of  opinion  there  may  exist  with 
regard  to  the  classification  of  the  other  taxes,  there  seems 
to  be  a  consensus  of  opinion,  in  this  at  least,  that  the  real 
property  tax  should  be  relegated  to  the  local  governments.' 

1  As  in  Frankfurt  a.  M.,  for  example.   Cf.  supra,  chapter  iv,  §  20. 

*  Cf.  Seligman,  Essays  in  Taxation  (1913),  chapters  xi  and  xii. 

*  This  position  is  taken  primarily  because  it  accords  with  the  wide- 
spread practice  in  this  country  of  supplying  nearly  all  the  municipal 
budgets  by  means  of  the  realty  tax. 


306  THE  TAXATION  OF  LAND  VALUE 

The  arguments  upon  which  the  defense  of  this  position 
is  based  are  the  following:  First,  from  the  standpoint  of 
administration,  the  local  assessors,  especially  if  they  are 
civil  service  appointees,  are  most  likely  to  know  the  actual 
value  of  the  property,  and  to  have  an  understanding  of  the 
peculiar  local  conditions  influencing  values.  Secondly, 
there  is  the  "situs"  argument,  that  the  property  should  be 
taxed  where  it  is  located,  so  that  the  community  in  which 
the  value  of  the  land  has  been  created  may  be  benefited  by 
appropriating  a  part  of  that  value.  It  accords,  therefore, 
with  the  principle  that  land  value  is  a  socially  created,  or 
community  value.  Again,  it  also  accords  with  the  "bene- 
fit" theory  of  taxation,  that  the  individual  ought  to  con- 
tribute to  the  state  in  proportion  to  the  services  received 
by  him.  Thirdly,  the  local  assessment  of  realty  conforms 
with  the  principle  of  local  autonomy.  The  levy  of  a  prop- 
erty tax  by  the  state,  for  example,  often  results  in  the  sup- 
port of  the  poorer  sections  by  the  more  wealthy  sections  of 
the  state.  But  under  local  autonomy,  i.e.,  where  each  com- 
munity provides  its  own  budget  from  its  own  resources, 
the  rural  districts  and  the  urban  districts  will  be  self-de- 
pendent. This,  then,  meets  the  objection,  for  example,  that 
by  the  exemption  of  improvements,  the  urban  communi- 
ties will  be  relieved  from  some  of  the  burden  of  taxation  at 
the  expense  of  the  rural  districts  where  the  value  of  the 
land  compared  with  the  value  of  the  improvements  is  pro- 
portionally greater  than  in  cities.^  Fourthly,  it  is  also 
argued  that  no  other  tax  is  more  appropriate  or  more  avail- 
able for  local  purposes  than  the  real  property  tax.  The 
income,  inheritance,  railway,  corporation  and  excise  taxes 
are  held  to  be  more  suited  for  the  other  taxing  jurisdictions. 
Moreover,  to  tax  business  or  any  form  of  capital  in  one 
locality  and  not  in  the  others,  is  very  likely  to  drive  out 
the  business  or  capital  taxed,  to  the  detriment  of  the  in- 
dustrial progress  of  the  community.  These  reasons,  there- 

*  Cf.  Seligman,  Essays  in  Taxalion  (1913),  p.  85;  and  infra.,  pp.  344  jf. 


THE  TAX  IN  ITS  FISCAL  ASPECT  307 

fore,  favor  the  relegation  of  the  tax  on  real  property  to  the 
local  governments. 

In  actual  practice  the  tax  on  land  value,  in  spite  of  its 
kinship  to  the  realty  tax,  has  been  levied  now  by  the  muni- 
cipality, now  by  the  state,  and  again,  by  the  federal  au- 
thority. As  we  have  seen,  however,  the  proportional, 
direct,  general  land-value  tax,  such  as  is  levied  in  the  Cana- 
dian municipalities,  has  down  to  the  present  been  confined 
to  municipal  purposes,  while  the  progressive,  indirect,  and 
subsidiary  forms  of  the  land- value  tax  are  state  and  federal 
taxes.^  Thus,  it  would  seem,  the  purpose  of  the  respective 
forms  of  the  tax  determines  by  what  civic  division  it  should 
be  levied.  Where  fiscal  considerations  predominate,  as  in 
the  case  of  the  Canadian  and  Australasian  municipal  levies, 
land-value  taxes  are  as  yet  strictly  municipal  taxes;  where 
the  purpose  of  the  levy  is  primarily  not  revenue,  but  social- 
economic  reform,  the  tax  is  levied  by  authorities  of  wider 
jurisdiction.  It  is  significant  in  this  connection,  and  in  view 
of  the  apprehensions  of  some  economists  with  regard  to  the 
results  of  separating  the  sources  of  public  revenue,^  that  in 
both  the  Canadian  and  Australasian  municipalities,  where 
the  tax  is  in  operation,  not  only  is  the  principle  of  separa- 
tion in  force,  but  autonomy,  or  rather  local  option,  in  taxa- 
tion exists  in  a  great  measure.' 

.  If  it  were  necessary  to  justify  the  levy  of  the  discrimina- 
tory land  tax  by  the  state  or  imperial  governments,  in 
accordance  with  the  fiscal  principle  discussed  above,  it 
might  be  contended  that  the  cause  of  the  value  increment 
of  land  is  not  wholly  local,  but  that  the  expenditures  of  the 

*  The  German  "  Wertzuwachssteuer"  is  an  imperial  tax  in  form  only, 
the  revenue  accruing  to  the  local  bodies. 

*  For  example.  Professor  Bullock,  who  is  opposed  to  the  principle  of 
separating  the  sources  of  revenue  partly  because  it  will  lead  to  local  option 
in  taxation.  Cf.  Seligman,  Essays  in  Taxation  (1913),  p.  367. 

*  Nevertheless,  the  provincial  government  in  Canada  and  the  state  gov- 
ernment in  Australasia  control  the  local  authorities  in  their  tax  legisla- 
tion, while  in  Queensland  the  local  tax  on  unimproved  value  is  even 
compulsory,  not  optional. 


808  THE  TAXATION  OF  LAND  VALUE 

larger  and  higher  civic  divisions  affect  the  value  of  the  land 
as  well.  In  the  case  of  mines  and  other  natural  resources, 
whose  value  depends  and  is  generally  attributable  to  a 
more  extended  market  than  the  immediate  locality,  the 
imperial  and  state  duties  can  indeed  be  defended  theoreti- 
cally from  this  standpoint.  Or,  it  may  be  argued  that  the 
fluctuating  and  indefinite  yield  of  these  indirect  taxes, 
which,  if  levied  by  the  local  authority,  would  be  very 
slight,  becomes  considerable  when  the  base  is  broadened 
by  making  them  state  or  federal  imposts.^ 

§  4.  The  distinguishing  features  of  the  land- value  tax, 
and  those  which  render  its  levy  so  popular  with  certain 
groups  of  people  are  its  underlying  fisco-economic  prin- 
ciples of  incidence,  amortization,  and  the  taxation  of  capi- 
tal versus  rental  value. 

From  the  time  the  Ricardian  rent  theory  ^  was  pro- 
mulgated to  the  present  day,  economists  have  been  in 
general  agreement  as  to  the  theory  of  the  incidence  of  a 
tax  on  rent.  Accepting  the  Ricardian  theory  of  rent  as  a 
surplus  value,  economic  theory  holds  that  a  tax  on  rent  or 
on  the  differential  value  of  land  cannot  be  shifted.  A  sharp 
distinction  is  drawn  in  this  theory  between  land  and  other 
commodities;  land  is  non-reproducible;  its  supply  is  fixed 
irrespective  of  the  demand.  Further  analysis  of  distinc- 
tions between  land  and  other  objects  of  value  led  econo- 
mists to  hold  that  the  essential  differentiating  character- 
istics of  land  consist  only  in  its  qualities  of  extension  and 
situation.  The  principle  that  a  tax  on  rental  cannot  be 
shifted  is  held  to  be  applicable  only  in  so  far  as  rent  is  due 

*  Cf.  Seligman,  op.  cit.,  p.  354. 

'  The  credit  of  discovery  of  this  principle  belongs  to  a  number  of 
writers  who  anticipated  Ricardo.  They  were  James  Anderson  {An  In- 
quiry into  the  Nature  of  the  Com  Laws,  with  a  view  to  the  new  Com  Bill 
proposed  for  Scotland,  1777),  Sir  Edward  West  (An  Essay  on  the  Applica- 
tion of  Capital  to  Land,  etc.,  1815),  Thomas  R.  Malthus  {An  Inquiry  into 
the  Nature  and  Progress  of  Rent,  and  the  Principles  by  which  it  is  regulated, 
1815),  and  Robert  Torrens  {An  Essay  on  the  External  Com  Trade,  etc., 
1815). 


THE  TAX  IN  ITS  FISCAL  ASPECT  309 

to  the  "location"  or  "diflFerential  site"  value.^  It  is  as- 
sumed by  this  theory  that  the  landlord  always  exacts  the 
highest  possible  rental  from  his  tenant,  a  "rack"  rent. 
Hence  an  additional  burden,  as  a  tax  on  rent,  cannot  be 
shifted  to  the  occupier  or  lessee,  but  must  be  borne  by  the 
landlord  himself. 

Now,  where  conditions  are  as  thus  assumed,'^  this  prin- 
ciple of  incidence  logically  follows.  But  whether  the  tax 
on  rent  as  ordinarily  charged  can  be  shifted  or  not  has  not 
yet  been  experimentally  demonstrated.  Indeed,  Professor 
Nicholson  '  and  others  seem  to  have  refuted  the  doctrine 
with  respect  to  agricultural  land  in  England  by  demon- 
strating that  rating  on  agricultural  land  —  values  having 
declined  so  considerably  during  the  last  quarter  of  a  cen- 
tury —  is  a  tax  on  profits,  and  is  borne  by  the  tenant  in 
part,  as  well  as  by  the  landlord.  Does  it  mean,  therefore,  in 
so  far  as  the  tenant  bears  the  tax,  that  the  much  maligned 
English  landlord  had  not  exacted  the  highest  rack  rent 
from  the  occupier  after  all?  It  is  also  to  be  noted  that 
practical  students  do  not  accept  the  principle  of  rent  un- 
questioningly.  Thus,  for  example,  in  the  conference  pro- 
ceedings of  the  "  Verein  fiir  Sozialpolitik  "  the  question  of 
the  incidence  of  the  "Zuwachssteuer"  was  admitted  to  be 

^  According  to  Professor  Davenport,  unless  the  fertility  differentials  be 
separated  from  the  location  differentials,  and  unless  the  tax  fall  only  on  the 
latter,  it  will  be  shifted  to  the  tenant  who  will  in  turn  recoup  himself  by 
"skimming  the  soil"  or  exhausting  the  fertility.  See  his  Value  and  Dis- 
tribution, p.  249,  note. 

*  Like  many  other  assumptions  of  the  cla^ical  economists,  those  under 
which  the  rent  theory  was  worked  out  are  preposterously  inconsistent 
with  the  facts.  Free  competitive  conditions  do  not  exist;  in  the  variety 
of  the  uses  of  land,  the  differential  value  cannot  be  computed  except 
theoretically  and  diagrammatically;  and,  moreover,  numerous  other 
factors  enter  into  the  determination  of  rent  besides  the  economic. 

*  Cf.  Rates  and  Taxes  as  Affecting  Agriculture,  pp.  124  jf.,  146.  His  ex- 
planation is,  of  course,  that  there  exists  little  agricultural  land  subject 
to  economic  rent;  that  the  rent  paid  is  to  a  great  extent  profit  on  capital 
sunk  in  the  land  by  the  owner.  This  does  not  contradict  the  Ricardian 
theory,  but  illustrates  how  the  theory  is  inapplicable  to  existing  condi- 
tions. 


810  THE  TAXATION  OF  LAND  VALUE 

unsolved.^  To  take  another  example,  in  the  debates  in  the 
British  Pariiament  on  the  mineral-rights  duty  the  attitude 
of  practical  men  with  regard  to  the  classical  theory  of 
incidence  was  very  skeptical.  Even  among  the  supporters 
of  the  land  duties,  especially  among  the  mining  operators 
(not  owners),  the  proposal  to  impose  a  tax  on  mineral 
rights,  on  the  royalty,  caused  much  apprehension  that  the 
price  of  minerals  might  be  enhanced.^  The  evidence  from 
the  countries  we  have  studied,  furthermore,  is  equally 
inconclusive  as  regards  the  incidence  of  the  tax.  With 
respect  to  urban  land,  however,  general  observation  seems 
to  confirm  the  classical  principle  of  incidence,^  probably 
because  of  the  great  demand  and  the  active  competition 
for  particular  sites  and  because  of  the  impersonal  relation- 
ship that  exists  for  the  most  part  in  cities  between  land- 
lord and  tenant. 

In  the  generally  accepted  theory  of  the  incidence  of 
taxation  on  buildings  and  other  improvements,  is  to  be 
found  the  ground  for  advocating  the  exemption  of  improve- 
ments from  taxation.  Buildings  and  improvements  are 
capital,  reproducible  and  subject  to  decay.  The  value  of 
reproducible  commodities  is  held  to  approximate  their  cost 
of  production.  In  the  long  run,  therefore,  a  tax  on  build- 
ings will  tend  to  be  shifted  to  the  occupier.*  The  conse- 
quences of  this  theory  will  be  further  discussed  in  the  fol- 
lowing chapter.  Here,  it  may  be  questioned  whether  the 
incidence  of  the  tax  on  land  and  building  respectively  can 
be  so  nicely  determined  as  the  above  statement  of  the 
theory  suggests,  or  whether  the  two  do  not  constitute  a  unit 
subject  to  a  new  law  of  incidence.  The  process  of  shifting 

*  Cf.  VerhancUungen  des  Vereinsfiir  Sozialpolitik,  Schnften  des  Vereins 
(1911),  vol.  cxxxviii,  pp.  45-46,  and  elsewhere. 

•  Pari.  Debates  (1909),  vol.  ix,  p.  415;  vol.  xi,  pp.  1147  Jf. 

•  Cf.  Verhandlungen  des  Vereinsfiir  Sozialpolitik  (1911)  p.  46. 

*  Two  conditions  limit  the  application  of  this  principle,  namely,  when 
the  tax  is  imposed  uniformly  on  all  kinds  of  capital,  and  in  the  case  of  old 
buildings,  when  the  owner  may  have  to  bear  the  tax. 


THE  TAX  IN  ITS  FISCAL  ASPECT  Sll 

an  additional  tax  on  buildings,  for  example,  assumes  a 
readjustment  in  the  demand  and  supply  of  houses.  That  is, 
fewer  new  dwellings  would  be  built  until  the  rentals  ad- 
vanced sufficiently  to  cover  the  tax  burden.  The  remission 
of  the  tax  would  similarly  cause  a  readjustment  in  the 
demand  and  supply  resulting  in  reduced  rentals.  Other 
factors  enter,  however,  to  complicate  the  problem  of  in- 
cidence, because  the  tax  on  land  value  may  raise  the  tax  on 
land,  synchronously  with  the  remission  of  the  tax  on  build- 
ings. To  elucidate  some  of  the  frictional  factors  arising 
from  this  twofold  change  in  taxation,  its  probable  effects  on 
building  operations  must  be  discussed. 

§  5.  The  recent  developments  in  the  economic  theory 
revolving  about  the  effects  of  the  taxation  of  land  value, 
called  forth  by  the  Single  Tax  agitation,  are  notable.  It 
used  to  be  consistent  with  sound  theory  to  believe  on  the 
one  hand  that  the  remission  of  the  tax  from  buildings,  as 
from  any  reproducible  good,  would  act  as  an  incentive  to 
their  production;  on  the  other,  that  the  expectation  of 
rising  land  value  and  of  landownership  was  responsible  for 
the  development  of  new  countries  and  new  communities. 
Now,  once  we  recognize  that  building  too  is  inevitably 
bound  up  with  land-value  increments  and  landownership, 
and  that,  as  Professor  A.  S.  Johnson  believes,^  the  latter 
are  incentives  to  building  operations,  the  antagonistic 
tendencies  arising  from  the  untaxing  of  buildings  and  from 
the  appropriation  of  the  value  increment  become  apparent. 

Before  attempting  to  determine  which  tendency  will  be 
the  stronger,  it  is  necessary  to  point  out  the  refutation  on 
theoretical  grounds  of  the  doctrine  that  the  owner  is  in- 
duced to  build  by  the  prospect  of  the  future  rise  in  land 
value.  Dr.  Anderson  ^  has  shown  by  a  mathematical  illus- 

^  Cf.  "  The  Case  Against  the  Single  Tax,"  in  Atlaniic  Monthly,  January, 
1914,  p.  36. 

*  Anderson,  " '  Unearned  Increments,'  Land  Taxes,  and  the  Building 
Trade,"  in  Quarterly  Journal  of  Economica,  vol.  xxvni,  pp.  811  ff. 


812  THE  TAXATION  OF  LAND  VALUE 

tration,  on  the  principle  that  earnings  in  all  lines  of  indus- 
try tend  to  become  equalized,  that  the  increment  is  an 
irrelevant  factor  in  the  determination  to  build.  Whether 
his  exposition  accords  with  the  facts  or  not,  it  would 
seem  that  in  general  the  speculative  character  of  the  "un- 
earned increment"  would  scarcely  be  conducive  to  build- 
ing that  was  not  capable  of  a  return  on  the  whole  ground 
rent  and  interest  on  the  investment.  A  distinction  must  be 
made  between  the  ordinary  investor  in  real  estate  and  the 
speculator.  The  investor  in  urban  property  expects  an  an- 
nual income  on  his  investments.  The  anticipated  incre- 
ment may  make  a  smaller  annual  return  satisfactory  to  the 
investor.  This  may  also  account  for  the  fact  that  the  de- 
terioration of  the  building  is  often  not  amortised,  and  for 
the  fact  that  the  mortgagee  often  counts  on  the  incre- 
ment in  making  the  loan.  ^  But  it  seems  clear  that  the  in- 
fluence of  the  future  value  increment  can  affect  the  rate 
of  income  only  in  communities  where  land  values  are  based 
on  actual  rentals  and  where  the  rate  of  increment  is  con- 
stant and  reflected  from  time  to  time  in  the  higher  rents. 
The  investor  in  farm  land,  on  the  other  hand,  is  the 
farmer  himself,  who  is  willing  to  forego  an  immediate  re- 
turn from  his  improvements,  because  of  the  prospective 
value  increments.  2 

It  is  otherwise  with  the  speculator,  including  the  "  land- 
poor"  owner  as  well  as  the  capitalist  operator.  Now  in  case 
of  land  not  yet  ripe  for  building,  where  the  increment  is 
more  or  less  remote  and  speculative,  an  owner  unable  to 
pay  the  carrying  charges  on  the  land,  i.e.,  taxes  and  special 

^  In  the  instance  cited  by  Dr.  Haig  to  show  that  realty  operations  also 
are  financed  on  the  expectation  of  the  increment,  it  will  be  noted  that  it  is 
a  steady  annual  increment  founded  on  the  increase  of  the  earning  power 
of  the  land  in  New  York  City.  Cf.  "  The  Effects  of  Increment  Taxes  upon 
Building  Operations,"  in  Quarterly  Journal  of  Economics,  vol.  xxix, 
p.  831. 

*  It  is  interesting  to  point  out  in  this  connection  that  the  money  invest- 
ment in  the  land  by  the  pioneer,  or  the  promoter  of  a  new  town  is  almost 
nil;  hence  his  readiness  to  wait  a  long  time  for  the  inevitable  increments. 


THE  TAX  IN  ITS  FISCAL  ASPECT  SIS 

assessments,  might  be  tempted  to  build  even  when  the  ren- 
tal did  not  promise  a  greater  return  than  the  interest  on 
his  borrowed  capital,^  and  the  carrying  charges  on  the  land. 
But  such  operations  would  be  confined  necessarily  to 
outlying  districts  and  new  communities,  and  even  there 
their  scope  would  be  limited.  For  the  borrowing  power 
of  the  "land-poor"  builder,  where  the  rise  in  value  is  re- 
mote is  very  much  limited,  and  the  rate  of  interest  higher. 
The  best  proof,  on  the  other  hand,  that  the  speculator 
with  means  is  not  induced  to  build  prematurely  is  the 
large  number  of  vacant  lots  in  every  city,  and  the  large 
expanse  of  uncultivated  rural  land  in  the  hands  of  ab- 
sentee owners.  And  are  they  not  deterred  from  building 
prematurely  by  the  fact  also  that  the  low  income  would 
be  a  convincing  proof  to  them,  and  to  their  creditors,  of  the 
true  low  value  of  their  property?  The  importance  of  this 
psychological  factor  is  seen  in  the  usual  practice  of  land- 
lords to  allow  their  apartments  to  stand  vacant,  or  to  offer 
"concessions"  to  the  renter,  rather  than  to  accept  a  lower 
rental.  It  is  scarcely  credible  that,  taking  any  city  as  a 
whole,  building  operations  could  be  based  on  the  whims  of 
speculators,  rather  than  on  actual  values.  Altogether  then, 
whether  he  builds  on  leased  ground,  on  ground  which  is  not 
rising  in  value,  or  on  ground  which  does  promise  an  incre- 
ment, the  landlord  "must  extort  from  his  tenants  rental 
covering  both  the  ground  rent  and  interest  on  the  invest- 
ment." 2 

Now,  grant  that  the  development  of  a  new  coimtry 
and  that  premature  building,  e.g.,  the  "pay  tax"  kind 
of  structures  in  Western  Canada,'  are  attributable  to  the 

^  Disregarding  the  depreciation  of  the  building  to  be  covered  by  the 
anticipated  "  unearned  increment." 

*  That  there  could  be  a  difference  in  rentals  according  as  the  builder  is 
the  owner  or  lessee,  if  it  does  not  invalidate  the  argument,  at  least  shows 
that  the  number  of  operations  that  do  not  cover  interest  on  the  land  in- 
vestment can  be  but  exceptional.  Cf.  Johnson,  (yp.  cit. 

*  Haig,  Exemption  of  Improvements  from  Taxation  in  Canada  and  the 
United  States,  p.  47. 


814  THE  TAXATION  OF  LAND  VALUE 

anticipated  increment.  They  are  not,  however,  the  basis  of 
our  present  agricultural  progress  or  urban  development, 
any  more  than  speculation  in  stocks  and  produce,  which 
assist  general  production  and  distribution,  is  the  cause  of 
the  progress  of  the  latter.  The  more  than  two  million 
tenant  farmers  in  this  country,  an  ever-increasing  class, 
not  to  mention  the  farm  laborers,  contradict  the  alleged 
eflBcacy  of  the  "unearned  increment"  to  preserve  our  agri- 
cultural population  and  progress.^  So  does  the  widespread 
leasing  system  in  England  discredit  the  potency  of  the 
"unearned  increment"  as  the  incentive  to  building  opera- 
tions. If,  then,  the  cases  where  premature  building  is  in- 
duced by  rising  land  value  are  limited  to  the  "land-poor" 
owners,  the  effect  of  the  tax  on  land  value  on  them,  it  has 
been  pointed  out,^  will  be  a  twofold  one.  First,  as  an  in- 
crease in  the  annual  burden  on  the  land,  the  tax  will  have 
the  tendency  to  induce  early  building;  secondly,  as  an 
appropriation  of  more  of  the  prospective  increments,  it 
will  discourage  building. 

Now,  turning  to  the  influence  of  the  untaxing  of  im- 
provements on  the  building  trade,  the  effect,  it  is  generally 
held,  would  be  to  stimulate  building.  But  in  so  far  as 
this  tendency  would  result  merely  from  the  exemption  of 
one  form  of  capital  now  disproportionately  burdened  by 
taxation,  the  stimulation  would  cease  with  the  equaliza- 
tion of  the  rates  of  profit  in  competitive  industries. 
Should,  however,  the  demand  for  new  buildings  increase 
through  other  causes,^  the  building  trade  will  continue 
active. 

After  these  theoretical  considerations,  we  may  inquire 
whether  the  study  of  the  tax  does  not  elucidate  the  prob- 
lem. Briefly,  if  it  has  been  difficult  or  impossible  to  trace 
the  great  building  activity  in  the  Australasian  and  Cana- 

^  Cf.  Johnson,  oj).  cit.,  p.  34. 

*  Haig,  in  Quarterly  Journal  oj  Economics,  vol.  xxix,  p.  838. 

»  Cf.  supra,  §  4,  p.  311. 


THE  TAX  IN  ITS  FISCAL  ASPECT  S15 

dian  municipalities  to  the  operation  of  the  land  tax,  it  can 
be  said  with  confidence  nevertheless,  that  no  evidence  of  a 
restriction  of  building  operations  appeared  anywhere.  Nor 
could  the  inactivity  in  the  building  trade  which  followed 
the  enactment  of  the  land-value  duties  in  England,  and  of 
the  imperial  increment  tax  in  Germany,  be  charged  to  the 
tax  on  the  "unearned  increment."  ^ 

§  6.  The  principle  of  "amortization"  rests  on  the  as- 
sumption that  the  land  tax  is  not  shifted.  The  argument 
runs  as  follows :  Since  the  value  of  the  land  represents  the 
capitalized  annual  net  rental  actually  accruing  or  antici- 
pated, and  since  the  tax  on  this  rental  cannot  be  shifted  to 
the  tenant,  the  value  of  the  land  when  the  tax  is  imposed  is 
reduced  by  the  capitalized  value  of  the  tax.  Therefore,  the 
proprietor  in  possession,  when  the  tax  is  levied,  alone  pays 
the  tax,  as  is  evident  from  the  reduction  in  the  selling  value 
of  his  property.  When  the  tax  is  thus  capitalized,  or 
"amortized,"  the  purchaser  of  the  land  subsequent  to  the 
imposition  of  the  tax  is  in  reality  exempt  from  its  payment. 

The  process  of  "amortization  "  applies  to  the  land  tax  in 
so  far  as  the  latter  is  an  exclusive  tax,  i.e.,  not  levied  on 
other  forms  of  capital,  or  income.  The  facility  of  capi- 
talizing the  tax  depends  upon  the  certainty  of  the  levy, 
that  is,  the  constancy  of  the  rate  of  tax  and  of  the  assessed 
value.  Provided  the  amount  of  the  tax  can  be  coimted 
upon,  the  purchaser  will  deduct  its  capitalized  value,  for  he 
will  not  pay  more  for  the  property  than  the  capitalized 
value  of  the  anticipated  net  rental.  The  fact  that  land  falls 
in  value  on  the  imposition  of  a  tax,  therefore,  corroborates 
the  principle  of  incidence  of  a  tax  on  land  value.  Theoreti- 
cally the  value  of  the  improvements  will  not  fall,  for  their 
value  equals  the  cost  of  their  production  and  it  would  seem 
as  if  their  value  could  not  fall  below  their  cost.  In  other 
words,  the  tax  on  improvements  is  shifted  to  the  tenant. 
Practically,  however,  especially  when  the  structures  are 
*  Cf.  chapters  iv  and  v. 


316  THE  TAXATION  OF  LAND  VALUE 

old,  the  tax  may  affect  their  value.  At  any  rate  it  is  dif- 
ficult to  measure  or  trace  the  exact  decline  in  the  value  of 
improvements  in  case  of  an  imposition  of  a  new  tax  on  real 
estate. 

In  our  American  cities,  with  the  general  property  tax, 
under  which  most  forms  of  wealth  except  real  property 
practically  escape  taxation,  the  "amortization"  process  is 
not  only  theoretically  possible,  but  is  the  estabUshed  pro- 
cedure. In  purchasing  property  every  one  takes  into  ac- 
count the  amount  of  taxes,  deducting  their  capitalized 
value  from  the  value  of  the  capitalized  rental  of  the  prop- 
erty. Theoretically,  then,  the  tax  is  no  burden  on  the  land 
owner  who  has  purchased  subsequent  to  the  imposition  of 
the  tax.  In  this  country,  indeed,  where  the  rate  of  tax  is 
more  or  less  constant  the  land  tax  essentially  ceases  to  be 
a  tax  at  all.  The  ease  and  certainty  of  this  kind  of  taxa- 
tion accords  well,  indeed,  with  American  individualism, 
respect  for  private  property,  and  general  distaste  for  pay- 
ing taxes.  The  "amortization"  process  may  well  be  an  ex- 
planation not  only  of  the  absence  of  full-value  and  uniform 
assessment,  and  of  the  general  undervaluation  of  real  estate, 
but  also  of  the  popularity  of  the  real  property  tax  in  this 
country,  as  compared  with  other  taxes.  ^ 

Whatever  makes  the  ascertainment  and  computation  of 
the  untaxed  value  of  the  land  difficult,  checks  or  frustrates 
this  process  of  "amortization."  Not  that  the  expectation 
of  a  tax  will  not  always  affect  the  value  of  the  property, 
but  by  keeping  the  assessment  at  the  actual  value  by  fre- 
quent valuations,  by  graduating  the  scale  of  rates,  by  tax- 
ing the  value  increment,  the  landowner  will  at  least  be 
made  to  share  the  income  from  his  value  increment  with 
the  government  to  a  greater  degree  than  at  present.  Take, 

*  This  is  illustrated  by  the  diflBculties  encountered  with  legislatures  in 
revising  the  statutes  to  j)ermit  of  a  full-value  assessment,  in  spite  of  the 
advantages  it  may  have  industrially  in  lowering  the  rate  of  tax,  and 
broadening  the  basis  for  public  loan  purposes.  A  readjustment  of  values 
gives  rise  to  apprehension  among  landlords.  See  infra,  chapter  x. 


THE  TAX  IN  ITS  FISCAL  ASPECT  817 

for  example,  the  progressive  urban  communities  where  land 
tends  to  appreciate  in  value,  as  in  western  Canada,  and 
where  the  untaxed  value  of  the  land  one  year  may  not  rep- 
resent the  net  value  the  following  year.  Again,  by  intro- 
ducing a  progressive  scale  of  rates,  how  shall  the  purchaser 
estimate  the  capitalized  value  of  the  tax  with  any  degree  of 
accuracy?  Even  more  does  the  tax  on  value  increment  de- 
feat the  process  of  "amortization"  of  the  tax;  for  as  the 
owner  is  taxed,  not  on  the  selling  value,  but  on  the  profit  or 
surplus  likely  to  accrue  in  the  future,  the  untaxed  value  of 
the  land  cannot  be  foretold.  The  amount  by  which  such  a 
tax  may  reduce  the  value  of  land  becomes  entirely  specu- 
lative. Indeed,  as  the  interest  of  both  speculator  and  tax- 
ing authority  is  the  same,  namely,  that  the  land  appreciate 
in  value,  the  value-increment  tax  may  not  have  a  severely 
depreciating  influence  on  the  value  of  the  land  at  all.  At 
any  rate,  the  objection  by  some  that  the  real  property  tax 
is  no  tax  whatever  because  it  is  "amortized,"  does  not 
apply  so  much  to  the  tax  on  land  value,  especially  to  the 
value-increment  form  of  the  tax. 

§  7.  The  question  whether  the  capital  value,  i.e.,  the 
capitalized  net  income,  or  whether  the  net  income  of  the 
land  (not  deducting  taxes)  should  be  made  the  base  of  tax- 
ation is  unimportant  as  regards  the  slight  tax  on  land  value 
at  present  in  operation.  Inasmuch,  however,  as  critics  of 
the  Single  Tax  have  pointed  out  the  futility  of  attempting 
to  raise  revenue  by  a  tax  on  the  capital  value  of  land  and 
have  employed  the  argument  also  against  the  proposal  of 
land-value  taxation,^  it  is  necessary  to  analyze  the  point  at 
issue.  As  a  fiscal  policy  taxation  on  the  capital  value  of 
land  may  be  regarded  as  a  paradoxical  proposal,  for  by 
taxing  land  value  you  destroy  the  value  by  the  amount  of 
the  tax  capitalized.  If,  as  has  been  pointed  out,^  the  mar- 

*  For  example,  see  E.  R.  A.  Seligman,  in  The  Survey,  March,  7,  1914, 
p.  701. 
'  Mr.  Pleydell,  Secretary  of  the  International  Conference  on  State  and 


S18  THE  TAXATION  OF  LAND  VALUE 

ket  value  declines  by  reason  of  the  tax,  there  will  be  less 
and  less  to  tax  as  the  rate  increases.  For  example,  suppose 
the  annual  tax  on  land  is  two  and  one-half  per  cent.  The 
market  value  of  a  parcel  of  ground  yielding  an  income  of 
$50  was  before  the  levy  of  the  tax  $1000,^  and  after  the  im- 
position only  $666|.2  Instead  of  yielding  a  tax  of  $25  on 
$1000,  the  tax  on  $666§  is  only  $16.66f ,  from  the  stand- 
point of  revenue  a  loss  of  about  $8.  Indeed,  if  the  rate 
of  tax  were  sufficiently  increased,  in  accordance  with  the 
Single  Tax  proposal,  the  very  purpose  of  the  tax  would  be 
frustrated.  Thus,  were  the  rate  fixed  at  five  per  cent,  and 
were  the  capital  value  to  remain  the  base  of  the  tax,  there 
would  be  no  value  to  tax,  the  capitalized  tax  having  ab- 
sorbed or  destroyed  all  the  income.  The  significant  thing, 
however,  is  that  all  this  time  the  rental  remains  undis- 
turbed. 

In  view  of  this  situation  it  has  been  proposed  ^  that  the 
annual  rental  rather  than  the  selling  value  (the  untaxed 
value)  be  made  the  basis  of  assessment.  Or,  if  ad  valorem 

Local  Taxation  says:  "I  was  rather  surprised  to  hear  the  advocates  of 
Single  Tax  speak  in  the  same  breath  of  taxing  the  unearned  increment  by 
taxing  a  certain  amount  out  of  the  value  of  land  at  the  time  of  sale.  All 
attempts  to  deal  with  selling  values  in  this  way  are  dealing  with  what  in 
one  sense  is  legal  fiction.  The  only  reason  land  has  value  at  all  is  that  you 
can  get  a  certain  rental  out  of  it.  If  you  keep  people  from  collecting  rents 
you  destroy  values.  Now,  how  are  you  going  to  tax  the  unearned  incre- 
ment which  disapi>ears  wherever  you  increase  a  tax  on  the  rental  value 
is  a  problem  I  have  not  yet  been  able  to  understand.  It  is  interesting  to 
see  how  that  would  work  out.  A  man  pays  a  certain  amount  of  money  for 
his  land  based  upon  the  estimated  net  return,  but  if  he  is  deprived  of  a 
certain  amount  of  his  net  return  by  an  increase  in  the  annual  tax,  the 
land  will  have  its  selling  value  reduced.  The  intricacies  would  amuse 
one,"  etc.  Quoted  by  Marsh,  Taxation  of  Land  Values  in  American 
Cities,  p.  49. 

^  At  five  per  cent. 

'  Because  two  and  one-half  per  cent  of  $6663,  capitalized,  plus  the  net 
value  $666j,  make  up  the  $1000  original  value. 

*  See  Davenport,  "  The  Single  Tax  in  the  English  Budget,"  in  Quar- 
terly Journal  of  Economics  (1910),  vol.  xxiv,  pp.  283  jf.  Also  Pleydell, 
"The  Incidence  of  Taxation,"  in  First  Conference  on  Stale  and  Local 
Taxation"  (1907),  p.  432. 


THE  TAX  IN  ITS  FISCAL  ASPECT  S19 

taxation  is  preferred,  that  the  actual  or  anticipated  rental 
be  capitaHzed  for  purposes  of  taxation.  From  the  stand- 
point of  the  proprietor  certainly  the  change  is  of  no  conse- 
quence. Whether  you  tax  the  market  value  or  the  rental 
his  net  income  will  remain  practically  unaltered.  From  the 
point  of  view  of  fiscal  poUcy,  however,  the  change  is  im- 
portant. Since,  according  to  theory,  the  rent  remains  un- 
affected by  the  tax  on  land  value,  the  government  can 
always  appropriate  a  portion  of  this  economic  rent  by 
taxation,  irrespective  of  market  conditions. 

For  practical  purposes,  however  important  these  sug- 
gestions may  be  for  the  Single  Tax  policy,  the  tax  on  land 
value  may  continue  to  be  levied  on  the  selling  value  with- 
out loss  to  the  government.  So  long  as  confiscation  is  not 
proposed,  through  the  regulation  of  the  rate  of  tax  the 
state  can  appropriate  whatever  share  of  land  value  it  de- 
crees by  taxing  the  selling  value. 

More  practical  difficulties  may  be  raised  when  the  as- 
sessment is  reduced  by  the  decHne  in  the  value  of  the  land. 
For,  if  a  law  exist  limiting  the  rate  of  tax  in  the  municipal- 
ity, or  if,  as  is  customary,  the  amount  of  municipal  indebt- 
edness is  restricted  legally  by  the  amount  of  the  assessment 
of  real  property,  the  exemption  of  improvements,  or  any 
other  cause  of  restricting  the  base  of  revenue,  may  neces- 
sitate a  change  in  the  statute.  This  is  again  a  matter  of  ad- 
ministration, necessary  to  point  out,  but  which  does  not 
vitiate  the  fiscal  principle  of  the  tax.^  Moreover,  full-value 
assessment  and  the  tendency  of  appreciating  land  value 
will  counteract  the  restriction  of  the  base  of  taxation. 

Another  consideration  important  alike  from  the  stand- 
point of  the  taxing  authority  and  that  of  the  taxpayer,  is 

^  To  circumvent  the  constitutional  diflSculties  with  respect  to  the  legal 
limitation  of  the  borrowing  power  of  the  city,  the  recent  proposal  for 
untaxing  buildings  in  New  York  City  retains  one  per  cent  of  the  value  of 
improvements  in  the  tax  base.  Thus,  it  is  hoped,  the  total  value  of  the 
improvements  would  continue  to  constitute  part  of  the  assessment  value, 
by  which  the  borrowing  power  of  the  city  is  limited. 


320  THE  TAXATION  OF  LAND  VALUE 

raised  by  the  value-increment  duty.  As  the  selling  value 
is  the  basis  of  computing  the  increment,  any  change  in  that 
value  occasioned  by  a  change,  not  in  income,  but  in  the 
interest  rate  will  contract  or  swell  the  taxable  differential. 
Any  fall  in  the  rate  of  interest  will,  therefore,  entail  an 
unintentional  hardship  on  the  taxpayer;  while  a  rise  in  rate 
will  entail  a  loss  in  revenue.  This  diflSculty,  which  raises 
a  serious  objection  to  the  levy  of  the  value-increment  tax, 
could  be  obviated  by  making  the  gross  rental  the  basis  of 
computation.^ 

§  8.  This  fine,  even  subtle,  distinction  in  method  of  as- 
sessment for  administrative  purposes  is  not  to  be  confused 
with  the  ordinarily  understood  difference  between  taxing 
the  capital  value  and  the  rental  of  land.  Historically  the 
assessment  on  the  basis  of  rents  paid  preceded  that  on  the 
basis  of  capital  value.  In  fact  the  latter  method  has  only 
recently  superseded,  or  is  superseding,  the  assessment  of 
rental  income.  With  few  exceptions,''  the  general  assess- 
ment on  the  basis  of  the  capital  value  of  property  is  con- 
fined to  the  United  States,  Canada,  Australasia,  and 
(since  the  enactment  of  the  land-value  duties)  to  England. 
In  Germany,  the  system  of  assessment  "nach  dem  ge- 
meinen  Wert"  has  only  recently  begun  to  supersede  the 
older  method. 

The  advantages  and  causes  of  this  change  in  method 
have  already  been  reviewed.'  The  chief  argument  is  that 
the  taxation  of  rentals  encourages  the  withholding  of  land 
from  use.  Land  bought  and  kept  undeveloped  for  specu- 
lative purposes  is  exempted  from  the  tax  provided  no  rent 

^  Cf.  Davenport,  in  Quarterly  Journal  of  Economics  (1910),  vol.  xxiv, 
pp.  28^90. 

*  In  some  of  the  Swiss  cantons,  in  Rome  for  building  land,  and  in  Hol- 
land for  the  property  tax,  capital  value,  rather  than  rental,  is  now  also 
made  the  basis  of  assessment.  Cf.  Papers  Bearing  on  Land  Taxes,  etc. 
(Cd.  4750),  1909,  p.  50,  and  (Cd.  4845).  The  supplementary  income  tax 
in  Prussia  and  some  of  the  other  states  is  levied  on  the  capital  value  of 
property,  while  in  Great  Britain  the  death  duties  are  so  levied.  See  ihid. 

^  See  supra,  chapters  v  and  vi. 


THE  TAX  IN  ITS  FISCAL  ASPECT  821 

is  yielded;  therefore,  speculation  is  fostered.  In  urban 
communities  the  withholding  of  land  from  use  has  been 
said  to  promote  congestion  and  unsanitary  housing  condi- 
tions. Furthermore,  the  exemption  of  vacant  and  poorly 
utilized  land  from  taxation  is  fiscally  inexpedient,  for  it 
becomes  a  means  of  escaping  taxation.  When  it  is  con- 
sidered also  that  the  value  of  vacant  land  tends  to  appre- 
ciate equally,  sometimes  even  more  ^  than  the  improved 
lots,  it  will  be  admitted  that  the  rent  does  not  constitute 
a  test  of  the  taxpayer's  ability  to  contribute,  unless  sup- 
plementary taxes  are  levied.  For  these  reasons,  the  local 
authorities  in  England  are  desirous  of  adopting  the  pro- 
posed change  from  rental  to  capital  value  assessment.^ 
And  the  purpose  of  the  undeveloped  land  duty  in  England 
was  to  correct  the  inequalities  resulting  from  the  older  sys- 
tem of  assessment.  Similarly  in  Canada,  the  wild-land  tax 
and  the  method  of  superassessment  have  been  resorted  to, 
to  offset  the  tendency  of  evading  taxation  by  keeping  the 
land  undeveloped. 

A  word  about  the  status  of  the  absentee.  Not  all  unim- 
proved land  is  owned  by  non-residents;  yet,  in  many  com- 
munities much  of  the  vacant  land  is  the  property  of  ab- 
sentees. In  the  countries  where  vacant  property  is  not 
liable  to  taxation,  the  general  antipathy  to  the  non-resi- 
dent is  comprehensible.  But  where  taxation  on  capital 
value  is  in  vogue,  the  non-resident  contributes  to  the  reve- 

*  For  example,  when  a  parcel  of  ground  is  sold,  the  building  which 
may  be  out  of  date  may  be  an  impediment  to  the  plans  of  the  buyer. 
Thus,  as  the  writer  has  been  informed,  the  site  on  which  the  Masonic 
Temple  is  located  in  Chicago  would  be  worth  a  great  deal  more  if  there 
were  no  building  upon  it. 

*  Cf.  E.  Porritt,  "  The  Struggle  over  the  Lloyd  George  Budget,"  in 
Quarterly  Journal  of  Economics  (1910),  vol.  xxiv,  p.  257.  "  The  mansions 
have  been  on  the  rate  books  at  merely  nominal  rental  values.  They  have 
stayed  at  such  ridiculous  valuations  because  no  one  in  the  parishes  con- 
cerned cared  to  antagonize  the  local  feudal  aristocracy  by  objecting  to  the 
assessments." 

The  new  system  of  land  valuation  which  is  being  completed  in  England 
will  help  usher  in  the  rating  of  capital  value. 


322  THE  TAXATION  OF  LAND  VALUE 

nue  in  proportion  to  the  assessed  value  of  his  property. 
He  is  also  liable  to  special  assessments,  and  special  rates 
for  services  by  which  he  only  remotely  benefits.  Nor,  must 
it  be  overlooked  that  he  has  no  voice  in  the  enactment  of 
measures  pertaining  to  taxes  and  expenditures.  The  ex- 
planation of  the  discriminatory  legislation  against  the  ab- 
sentee-owner lies  in  local  conditions.  Thus,  in  Canada,  it 
is  the  enormous  increments  that  accrue  to  the  absentee, 
through  the  efforts  of  the  settler  in  building  up  the  com- 
munity, that  breed  the  spirit  of  opposition  and  discrimina- 
tion. Then,  it  will  be  remembered  that  the  Hudson's 
Bay  Company  is  classed  with  the  absentees.  And  lastly, 
in  many  towns  half  or  more  than  half  the  area  may 
be  owned  by  such  a  company,  or  other  absentees,  pre- 
venting the  closer  settlement  and  the  growth  of  the  com- 
munity. 

§  9.  It  is  necessary  next  to  test  the  tax  on  land  value  by 
the  canons  of  taxation  laid  down  by  fiscal  authorities. 
Those  canons  are  justice,  economy,  and  fiiscal  adequacy. 
To  be  just  a  tax  must  be  equal,  universal,  uniform ;  to  be 
economical,  it  must  accord  with  the  criteria  of  certainty 
and  convenience;  to  be  fiscally  adequate  it  must  be  pro- 
ductive and  elastic.^  There  is  no  tax  in  our  complex  sys- 
tem, however,  which  does  not  practically,  if  not  theoreti- 
cally, sin  against  these  canons,  especially  those  requiring 
equality  and  universality.^  Whether  you  make  your  stand- 
ard of  justice  fit  the  "benefit"  or  the  "faculty"  theory,  a 
great  deal  of  ingenuity  must  be  employed  to  prove  existent 
taxes  in  harmony  with  the  criteria  of  justice.  The  fact  is, 
as  one  writer  has  well  expressed  it,  "expediency,  not  logic, 

*  Cf.  Eheberg,  Finanztoissenschaft,  p.  165. 

'  We  are  aware  that  fiscal  authorities  have  reconciled  even  the  inheri- 
tance and  corporation  taxes  with  the  canons  of  taxation.  See  Seligman, 
Essays  in  Taxation  (1913),  pp.  126  Jf.,  for  a  justification  of  the  inheritance 
taxes  according  to  equity.  However  ingenious  such  proof  of  the  consis- 
tency of  the  inheritance  tax  with  the  faculty  theory  may  be,  its  adoption 
was  more  a  matter  of  fiscal  expediency  than  of  adherence  to  doctrine. 


THE  TAX  IN  ITS  FISCAL  ASPECT  823 

governs  taxation."  ^  So  long  as  the  ideal,  a  single  tax,  if 
such  exist,  is  found  impracticable,  and  it  is  necessary  to 
have  a  multiple  system  in  the  hope  that  the  inequalities  of 
the  respective  taxes  will  offset  one  another,^  the  justifica- 
tion of  a  subsidiary  tax  on  the  basis  of  justice  will  be  prac- 
tically futile. 

Now,  the  tax  on  land  value  is  not  only  a  subsidiary,  but 
it  is  a  discriminatory  tax.  But  there  is  need  of  subsidiary 
taxes,  and  like  the  corporation,  inheritance,  business,  and 
other  imposts,  the  tax  on  land  value  may  be  made  to  per- 
form a  valuable  function,  wherever  it  is  found  expedient. 
As  to  its  discriminatory  character,  all  subsidiary  taxes  are 
discriminatory.  Like  the  corporation  tax,  for  example,  the 
tax  on  land  value  is  class  legislation,  an  attempt  of  the 
dominant  party  to  place  an  extra  burden  on  the  land- 
owners. The  excuse  of  course  is  that  this  particular  group 
or  class  fails  to  contribute  to  the  public  budget  in  propor- 
tion to  its  ability.' 

In  calling  the  tax  confiscatory,  the  opponents  of  the  tax 
forget  that  all  taxation  is  essentially  confiscatory.  A  tax 
is  no  voluntary  contribution,  it  will  be  recalled;  it  is  "a 
compulsory  contribution  from  the  person  to  the  govern- 
ment to  defray  the  expenses  incurred  in  the  common 
interest  of  all,  without  reference  to  special  benefits  con- 

*  Firtt  Naiional  Conference  on  State  and  Local  Taxation  (1907),  p. 
219. 

'  Thus  Cossa  said,  "by  means  of  their  variety  rendering  the  burden 
less  oppressive  to  the  taxpayers."  Premiers  Eliments  de  la  Science  des 
Finances,  p.  108. 

*  It  is  possible  to  argue  that  the  landlord  is  better  able  to  pay  this 
extra  charge  because  of  his  particular  position  of  special  privilege  and 
because  the  growth  of  the  community  enhances  the  value  of  his  land,  so 
that  his  income  is  augmented  over  and  above  the  interest  on  his  invest- 
ment. "Is  it  too  much,  is  it  unfair,  is  it  inequitable,  that  Parliament 
should  demand  a  special  contribution  from  these  fortunate  owners  to- 
wards the  defense  of  the  country  and  the  social  needs  of  the  unfortunate  in 
the  community,  whose  efforts  have  so  materially  contributed  to  the 
opulence  which  they  are  enjoying."  From  Lloyd  George's  Budget  Speech, 
Pari.  Debates  (1909),  vol.  iv,  p.  536. 


S24  THE  TAXATION  OF  LAND  VALUE 

ferred."  ^  Strictly  speaking,  every  tax  is  an  infringement 
of  the  individual's  property  rights,  therefore.^  But  there  is 
common  agreement  that  the  rights  of  the  individual  are 
subordinate  to  the  will  of  society.  Society  has  the  power 
and,  therefore,  the  right  to  single  out  one  social  group  and 
place  a  special  impost  upon  it,  provided  such  action  is 
proved  expedient.^ 

§  10.  What,  then,  constitutes  expediency  in  taxation? 
The  effects  of  the  levy  of  a  tax  are  far-reaching.  Professor 
Ely's ^  words  are  still  valid:  "Taxation  may  create  monop- 
olies, or  it  may  prevent  them;  it  may  diffuse  wealth  or  con- 
centrate it;  it  may  promote  liberty  and  equality  of  rights, 
or  it  may  tend  to  the  establishment  of  tyranny  and  des- 
potism; it  may  be  used  to  bring  about  reforms,  or  "foster 
dissension  and  hatred  between  classes.  .  ."  The  impor- 
tance of  choosing  the  most  suitable  object  for  taxation  is 
thus  made  evident.  If,  then,  besides  satisfying  the  eco- 
nomic and  fiscal  canons,  a  tax  is  no  more  discriminatory  and 
confiscatory  than  the  other  existent  imposts,  and,  further- 
more, does  not  create  monopoly,  concentrate  wealth,  pro- 
mote tyranny  and  social  conflict,  it  is  to  be  accounted 
expedient. 

Before  discussing  the  expediency  of  the  tax  on  land  value 
as  judged  from  its  operation,  it  is  necessary  to  point  out  a 
serious  objection  to  its  levy.  The  tax  on  land  value,  it  is 
claimed,  is  merely  a  pretext  for  the  confiscation  of  property 
for  the  purpose  of  promoting  some  social  or  economic  re- 
form; in  reality  it  is  no  tax  at  all.  It  has  been  questioned 
whether  the  government  should  exercise  its  taxing  power 

^  Seligman,  Essays  in  Taxation  (1913),  p.  432. 

'  Cf.  First  National  Conference  on  State  and  Local  Taxation  (1907),  p. 
214.  Those  who  protest  against  the  introduction  of  a  tax  on  the  ground 
that  one  class  is  discriminated  against  overlook  the  gross  inequalities 
tolerated  under  the  present  system  of  taxation. 

*  To  a  great  extent  legislation,  when  proved  expedient,  has  had  to  be 
reconciled  to  the  standards  of  right  and  justice,  or  has  even  modified  the 
latter. 

*  Taxation  in  American  States  and  Ciiiea  (1888),  p.  65. 


THE  TAX  IN  ITS  FISCAL  ASPECT  325 

for  other  than  fiscal  purposes,  i.e.,  to  secure  an  adequate 
revenue. 

Since  Professor  Adolf  Wagner  promulgated  his  "socio- 
political" theory  of  taxation,  this  question  has  aroused 
considerable  controversy.  But  as  regards  many  a  contested 
theory,  the  opponents  are  nearer  agreement  than  they  will 
admit.  Professor  Seligman  denies  Wagner's  thesis  that 
taxation  "  is  something  more  than  a  means  of  raising  reve- 
nue, that  it  is  also  a  means  of  correcting  the  distribution  of 
wealth  which  results  from  competition."  ^  Yet  Professor 
Seligman  reaches  the  same  conclusion  through  reconstruct- 
ing the  conception  of  justice.''  In  setting  up  this  socio- 
political point  of  view,  Wagner  was  merely  interpreting  the 
new  basis  of  justice,  the  socio-political  versus  the  eight- 
eenth-century competitive  and  individualistic  basis.  And 
that  is  what  Seligman  has  done  in  constructing  the  "  Social 
Theory  of  Finance."  '  Where  shall  the  line  be  drawn  be- 
tween the  socio-political  theory  stated  in  Wagner's  own 
words  above  and  the  admission  that  the  government 
should  be  able  "to  utilize  the  taxing  power  as  a  political 
or  social  engine?"*  Nothing,  indeed,  shows  this  socio- 
political tendency  more  than  progressive  taxation  and  the 
English  income  tax,  which  distinguishes  earned  from  un- 
earned income.  These  may  be  explained  on  the  assump- 
tion that  they  measure  better  the  ability  of  the  taxpayer 
than  the  proportional  or  ordinary  income  taxes.  On  this 
basis,  however,  the  tax  on  land  value  can  similarly  be 
defended,  for  the  profits  accruing  from  land  ownership  can 
bear  a  heavier  tax  with  less  sacrifice  on  the  part  of  the 
owner,  it  may  be  argued,  than  can  earnings  of  labor. 
Nevertheless,  in  this  age  when,  it  will  be  agreed,  wealth 

'  Lehr-  und  Handbuch  der  Pditischen  Oekonomie :  Finanzwissenschaft, 
vol.  n,  bk.  V,  chap.  3,  §  159. 

*  Seligman,  "  Progressive  Taxation,"  American  Economic  Association 
Quarterly,  vol.  ix,  pp.  130-31,  and  his  practical  admission  of  the  stand- 
point in  Essays  in  Taxation,  pp.  316-17. 

«  im.,  p.  342.  *  lUd.,  p.  78. 


326  THE  TAXATION  OF  LAND  VALUE 

is  being  accumulated  because  of  special  privilege,  as  shown, 
for  example,  in  the  monopolistic  control  of  industry,  and 
when  the  laboring  class  is  assuming  greater  power,  the 
tendency  of  all  legislation,  including  fiscal,  to  keep  in  view 
a  more  equitable  distribution  of  wealth  is  inevitable. 

The  extent  to  which  the  tax  on  land  value  has  been  in- 
stituted as  a  reform  measure,  rather  than  as  a  source  of 
revenue  varies  with  its  several  forms.  As  has  been  dis- 
cussed in  the  preceding  chapters,  the  municipal  land 
taxes  in  Canada  and  Australasia  are  purely  fiscal  in  char- 
acter. It  will  be  recalled  that  in  these  cases  the  tax  is  a 
direct,  proportional  levy.  Theoretically,  this  is  explainable 
on  the  ground  that  for  local  purposes  benefit,  rather  than 
faculty,^  is  the  criterion  of  taxation;  and  that  the  degree 
of  benefit  to  the  individuals  cannot  be  measured  accord- 
ing to  a  graduated  scale.  Practically,  it  may  be  explained 
by  the  fact  that  the  ratepayers  are  the  voters,  that  in  the 
above-mentioned  communities  opportunities  are  equal, 
and  that  the  progressive  tax  is  discriminatory,  and  would 
upset  the  stability  of  land  values,  the  chief  source  of  pros- 
perity and  income.  In  other  words,  the  tax  has  no  other 
purpose  than  to  make  every  landowner  pay  toward  the 
expenditures  of  government  in  proportion  to  the  value  of 
his  land. 

In  a  way,  then,  the  progressive  and  value-increment 
taxes  disclose  the  purpose  of  their  levy.  For  the  disinte- 
gration of  large  estates,  indeed,  the  graduated  scale  is  more 
effective  than  the  proportional  tax  would  be.  So  also,  when 
the  rate  of  tax  in  Germany  varies  with  the  length  of  owner- 
ship and  condition  of  the  land,  the  social  purpose  is  clearly 
manifested.  The  EngUsh  land  duties,  however,  are  an 
exception,  for,  although  the  predominant  motive  was  non- 
fiscal,  the  rates  of  tax  are  proportional,  not  progressive. 
Either  to  avoid  the  additional  complexity  which  the  pro- 

^  Seligman,  "  Progressive  Taxation  in  Theory  and  Practice,"  American 
Economic  Association  Quarterly,  vol.  ix,  p.  301. 


THE  TAX  IN  ITS  FISCAL  ASPECT  327 

gressive  scale  of  rates  must  occasion,  or,  what  is  more  likely, 
to  avoid  the  more  strenuous  opposition  that  would  have 
been  aroused  by  a  departure  from  the  traditional  adherence 
to  proportional  land  taxes,  Lloyd  George  and  his  party  con- 
tented themselves  with  proportional  duties  on  land  value.  ^ 
§  11.  There  remains,  then,  by  far  the  most  important 
question,  the  fiscal  expediency  of  the  tax  on  land  value. 
First,  as  to  its  productiveness.  At  the  present  rate  of  taxa- 
tion, the  conclusion  from  the  data  in  the  preceding  chapters 
must  be  that  the  tax  for  state  or  federal  purposes  can  sup- 
plement the  sources  of  revenue  but  meagerly.  Further- 
more, the  duties  on  increment,  on  undeveloped  land,  and 
on  mineral  rights  are  inelastic  sources  of  revenue.  Not  only 
is  the  base  of  the  tax  limited,  but  the  yield  cannot  be  regu- 
lated. Fiscally,  therefore,  the  value-increment  duty  and 
the  other  imperial  duties  are  unimportant  imposts.  For 
local  purposes,  on  the  other  hand,  when  all  land  is  sub- 
ject to  a  direct,  proportional  levy,  the  tax  is  not  only  pro- 
ductive but  elastic.  The  experience  with  the  tax  in  the 
Australasian  and  Canadian  municipalities  is  evidence  of 
this.  Wherever  the  value  of  the  land  tends  to  increase 
enormously,  so  that  the  rate  of  tax  can  remain  moderate, 
the  yield  of  the  tax  on  land  value  can  be  regulated  so  as  to 
supply  not  only  the  major  portion,  but  even  the  entire 
local  revenue.  The  recent  depression  in  Canada  has  not 
necessitated  a  change  in  the  system  even  in  "Single  Tax" 
communities,  but  it  is  doubtful  whether  an  additional 
source  of  income  would  not  have  facilitated  the  collection 
of  revenue  and  relieved  somewhat  the  landowners  already 
hard  hit  by  the  collapse  of  land  values.  This  would  apply 
more  strongly  to  older  communities,  where  landowners 
constitute  a  small  proportion  of  the  population,  and  where 
landed  property  is  not  the  chief  source  of  wealth.    The 

*  Instead  of  adopting  the  progressive  scale  as  in  Germany,  the  average 
rate  of  the  increment  duty  in  England,  however,  was  made  higher  than 
under  the  German  system. 


828  THE  TAXATION  OF  LAND  VALUE 

fiscal  expediency  of  the  new  system  will  vary  with  the  con- 
ditions in  the  different  cities;  but  the  following  facts  must 
be  borne  in  mind;  that  even  today  (l)the  tax  on  real  estate 
suflBces  for  nearly  the  entire  budget  of  numerous  munici- 
palities and  partly  also  for  state  purposes;  (2)  full- value 
assessment  is  practically  unknown;  (3)  the  value  of  im- 
provements does  not  increase  so  rapidly  as  that  of  the 
land. 

Secondly,  the  convenience  and  certainty  of  the  levy  on 
land  value  compare  favorably  with  other  imposts.  No  ar- 
guments need  be  brought  forth  to  substantiate  this  fact, 
but  it  is  necessary  to  point  out  a  few  cases  of  economic 
hardship  or  inconvenience.  In  England,  where  taxation  on 
capital  value  was  practically  unknown,  attention  has  been 
called  to  the  injustice  or  inconvenience  of  taxing  the  person 
who  is  in  receipt  of  no  income  out  of  which  to  pay,  as  under 
the  undeveloped-land  duty.^  Likewise,  we  have  heard 
often  of  the  hardship  the  tax  would  impose  upon  the  widow, 
owner  of  her  own  old  home.  So  also  the  owner  of  land  whose 
value  has  depreciated  has  been  commiserated.  Again,  it 
may  be  feared  that  the  local  option,  where  the  tax  on  land 
value  is  in  force  at  the  option  of  municipaUties,  may  en- 
danger industry  through  the  rivalry  which  exists  between 
cities.  Hardship  has  also  been  incurred  by  the  retroactive 
feature  of  the  "Zuwachssteuer"  in  Germany.  It  must  be 
replied,  however,  that  such  instances  of  inconvenience  and 
hardship  can  be  cited  in  the  case  of  almost  every  tax.^ 
Of  course  in  communities  of  rapidly  rising  land  value,  the 
land  tax  of  a  few  per  cent  of  the  land  value  is  easily  dis- 
counted and  is  scarcely  felt.  The  best  proof  that  the  tax  is 
not  oppressive  in  new  countries  is  furnished  in  the  adop- 
tion of  the  proportional  form  of  the  impost  by  such  demo- 

»  Cf.  Pari.  Debates  (1909),  vol.  xii,  p.  516. 

•  Not  to  mention  the  hardship  of  the  excise  and  import  taxes  on  the 
poorest  classes,  the  widow's  case  cited  above  is  probably  no  worse  than 
that  of  the  German  wage-earner  who  out  of  his  900  marks  annual  income 
pays  a  tax  to  the  state. 


THE  TAX  IN  ITS  FISCAL  ASPECT  829 

eratic  and  virgin  communities  as  in  Australasia  and  in 
western  Canada.  In  these  cases,  the  "leveling"  factor,  the 
use  of  the  tax  to  right  a  social  evil,  moreover,  played  little 
or  scarcely  any  part.  As  regards  the  other  forms  of  the  tax, 
the  exemption  of  a  minimum  increment  under  the  value- 
increment  duty  shields  the  less  fortunate  landowner  from 
the  burden.  It  will  be  remembered  also  that  the  retroac- 
tive feature  of  the  "Zuwachssteuer,"  however  inconsist- 
ent with  our  standards  of  justice,  was  upheld  by  the 
courts.  It  is  improbable  that  the  tax  would  have  been 
upheld,  if,  besides  being  unprecedented,  it  were  oppressive. 
This  illustrates,  indeed,  how  local  conditions  may  influence 
the  criterion  of  justice,  how  expediency  overrides  abstract 
principle. 

Thirdly,  in  considering  the  discriminatory  feature  of  the 
tax  on  land  value,  the  local  tax  must  be  again  differentiated 
from  the  imperial  and  state  taxes.  As  subsidiary  sources  of 
revenue  the  latter  are  no  more  discriminatory  than  the 
corporation,  inheritance,  business,  or  even  realty  taxes. 
But,  when  the  tax  on  land  value  is  made  the  only  tax,  the 
expediency  of  exempting  all  other  income  from  taxation 
even  for  local  purposes  may  be  questioned.  The  fact  is, 
however,  that  setting  against  the  apparent  inequality 
created  by  the  exemption  of  other  than  the  landowning 
class  from  taxation  the  comparative  difficulty  of  assess- 
ment and  collection  of  other  imposts,  and  considering,  too, 
that  the  value  of  the  land  depends  so  much  upon  the  public 
expenditure,  the  apparent  injustice  dwindles.  Especially 
is  this  true  where  the  land  constitutes  the  chief  source  of 
wealth  and  income,  as  in  the  new  communities  where  the 
land  tax  is  now  in  operation  as  the  only  source  of  public 
revenue,  and  where  the  municipality  itself,  given  the  op- 
tion, wills  to  exempt  wage-earners  and  the  capital  invested 
in  industry  from  taxation.  In  that  case  only  the  non-resi- 
dent landowner  is  discriminated  against,  and  has  cause  to 
complain. 


SSO  THE  TAXATION  OF  LAND  VALUE 

Fourthly,  it  is  evident  both  from  the  discussion  of  the  un- 
derlying principles  and  from  the  operation  of  the  tax,  that 
it  does  not  create  a  monopoly,  nor  concentrate  wealth,  nor 
promote  tyranny,  nor  foster  social  conflict.  The  fact  is  that 
by  this  tax  the  community  shares  a  little  more  of  the  value 
increment  which  accrues  to  the  landowner  than  before. 

§  12.  Aside  from  the  above  considerations,  there  is  an- 
other criterion  of  expediency  by  which  the  tax  must  be 
tested,  namely,  the  facility  of  its  administration.  In  gen- 
eral, the  prevalence  of  the  realty  tax  is  due  to  the  compara- 
tive ease  with  which  land  and  other  real  property  can  be 
assessed.  Since  an  early  period,  the  "cadastral"  system  of 
assessment  has  served  a  useful  purpose.  Not  only  for  tax 
purposes,  but  for  statistical,  juridical,^  political,  and  mili- 
tary purposes,  the  "Domesday  Book"  was  of  invaluable 
assistance  to  the  government.  In  modern  times,  however, 
an  extensive  system  of  accurate  valuation  and  registration 
of  the  land  by  the  central  government,  so  far  as  we  know, 
exists  nowhere.  The  reason  is  that  such  a  valuation  is  very 
expensive  and  subject  to  change  because  of  the  frequent 
fluctuations  in  the  value  of  the  land.  One  of  the  results  of 
the  tax  reforms  in  England  has  been  to  necessitate  just 
such  an  extensive  system,  and  the  valuation  of  all  the  land 
in  Great  Britain  is  now  under  way. 

It  is  difficult  to  say  whether  in  England  the  fear  of  the 
tax  on  land  value  had  for  a  long  time  prevented  an  accurate 
and  separate  assessment  of  the  land  and  improvements 
respectively,  or  whether  the  accurate  and  separate  assess- 
ment was  feared  as  a  consequence  of  the  imperial  land  value 
duties.  2  At  any  rate,  the  most  effective  argument  perhaps 
against  the  adoption  of  rating  on  land  value  and  the  argu- 
ment which  delayed  its  introduction  in  England,  has  been 

^  Namely,  to  guide  the  court  in  the  division  and  adjustment  of  the 
estates  of  the  deceased. 

*  That  is,  the  increment  and  undeveloped  land  duties  were  opposed, 
because  the  latter  at  least  would  necessitate  a  valuation  which  might 
lead  to  the  adoption  of  rating  on  land  value. 


THE  TAX  IN  ITS  FISCAL  ASPECT  831 

the  practical  difficulty  in  the  way  of  an  accurate  valuation 
of  the  site.  Although  some  experts  had  declared  such  valua- 
tion practicable,  public  opinion  generally  opposed  what 
was  called  a  hypothetical  valuation.  Under  the  theoretical 
assumption  that  the  tax  on  land  value  should  fall  on  eco- 
nomic rent,  and  that,  therefore,  it  was  necessary  to  take  ac- 
count of  all  the  capital  ever  sunk  into  the  soil  which  might 
have  affected  the  present  value  of  the  site,  every  one  will 
readily  admit  the  hypothetical  character  of  such  a  valua- 
tion. The  ascertainment  of  the  exact  "location"  rental 
is  an  impossibility.  Professor  Seligman  makes  this  clear 
in  the  following  passage:  ^  "Now,  it  is  manifestly  not  so 
easy  to  assess  the  land  values  —  that  is,  the  bare  value  of 
the  land  irrespective  of  all  improvements  —  as  it  is  to  assess 
the  selling  value  of  a  piece  of  real  estate.  For  instance,  an 
acre  of  agricultural  land  near  a  large  town  may  be  worth 
$200;  but  if  used  for  truck-farming,  considerably  more  than 
$200  may  have  been  expended  on  it  during  the  last  cen- 
tury or  two.  Who  can  tell  how  much  of  the  $200  present 
value  is  the  value  of  the  bare  land  and  how  much  is  to  be 
assigned  to  the  labor  expended?  Under  the  present  method 
we  have  at  least  a  definite  test  —  the  selling  value;  under 
the  new  method  we  should  have  no  test  at  all.  There  is 
every  likelihood,  therefore,  that  the  difficulties  of  the  pres- 
ent situation  would  be  intensified." 

If  every  reform  had  to  be  rejected  on  account  of  some 
theoretical  objection  little  progress  would  be  made.  In  the 
case  of  valuation,  the  experience  in  this  country  with  sepa- 
rate valuations  for  land  and  improvements  has  demon- 
strated the  practicability  as  well  as  the  usefulness  of  the 
system.  In  fact,  the  theoretical  objection  seems  unwar- 
ranted in  the  present  advance  made  toward  the  more  scien- 
tific valuation  of  land.  Even  admitting  that  improvements 
made  a  century  or  two  ago  have  had  an  influence  on  the 
present  value  of  agricultural  and  even  urban  land,  that 
*  Essays  in  Taxation  (1913),  p.  77. 


8S2  THE  TAXATION  OF  LAND  VALUE 

influence  could  be  only  slight  on  land  whose  value  is  due 
almost  entirely  to  the  growth  of  population.  As  for  im- 
provements made  on  land  in  recent  years,  their  cost,  in 
so  far  as  they  add  to  the  value  of  the  property,  is  deducted 
from  the  value  of  the  site,  and  this  suffices  for  all  practical 
purposes. 

One  of  the  important  effects  of  the  adoption  of  the  tax 
on  land  value  will  be  the  development  of  expert  and  more 
accurate,  or  even  scientific,  methods  of  valuation  of  the 
land  separated  from  the  improvements  upon  it.^  This  is 
because  the  system  of  taxing  land  value  exempts  improve- 
ments from  taxation  and  requires  fuU  value  assessments. 
But  irrespective  of  this  tax,  considerable  progress  has  al- 
ready been  made  toward  accurate  valuation.  So  far  as  we 
have  been  able  to  ascertain,  the  best  experiments  toward 
a  scientific  method  to  displace  the  crude  assessments  based 
on  estimate,  have  been  worked  out  in  a  few  American  cities, 
for  example.  New  York,  Newark,  Cleveland,  etc.'^  In  the 
United  States,  with  the  development  of  the  assessment  on 
capital  value,  some  systematic  method  of  valuation  was 
inevitable.  It  is  being  realized  that  not  only  to  avoid  the 
present  bickering  between  the  county,  state,  and  city  au- 
thorities and  to  do  away  with  the  inequalities  arising  from 
imderassessment,  but  for  business  purposes  as  well,  full 
value  assessment  is  necessary.  As  some  one  has  pointed 
out,  "if  a  person  is  seeking  investment  for  capital  he  will 
not  ask  you  what  the  standard  of  value  is  but  what  is  the 
rate  of  taxation."  ^  And  by  assessing  property  at  its  full 
value  a  reduction  in  rate  is  made  possible.  Moreover,  such 

^  The  agitation  of  the  Single  Taxers  for  a  scientific  valuation  of  the 
land  and  improvements  and  for  full-value  assessment  has  been  especially 
influential  and  promises  to  eradicate  some  of  the  gross  inequalities  grow- 
ing out  of  imdervaluation. 

'  Montreal  also  is  now  experimenting  with  the  new  method.  Cf.  Re- 
port  of  Assessment  Department,  City  of  Montreal  (1913),  pp.  11-15.  Cf. 
also  infra,  chapter  x. 

*  International  Conference  on  State  and  Local  Taxation  (1909),  p.  348. 


THE  TAX  IN  ITS  FISCAL  ASPECT  333 

an  assessment  broadens  the  base  on  which  the  municipal 
loans  may  be  contracted. 

It  is  furthermore  being  recognized  that  to  attain  accuracy 
in  assessment  it  is  necessary  to  determine  the  value  of  the 
land  and  of  the  improvements  separately.^  The  system  of 
separate  assessment  is  almost  universal  in  the  Australasian 
colonies  and  in  Canada  and  is  becoming  so  for  England, 
Ireland,  and  Scotland.  In  this  country  only  Indiana,  Mon- 
tana, North  Dakota,  Wisconsin,  New  York,  and  California 
provide  for  separate  Usting  of  land  and  improvements.  It 
is  also  practiced  in  a  number  of  American  cities  in  other 
states.^  The  application  of  the  more  or  less  scientific  prin- 
ciples, which  have  been  evolved,  to  the  ascertainment  of  the 
value  of  the  site,  is  as  yet  confined  to  less  than  a  dozen 
cities  in  the  United  States.' 

§  13.  How  does  a  scientific  method  of  valuation  differ 
from  the  present  method?  In  general  the  assessment  of 
property  is  now  based  on  an  estimate,  for  which  there  is 
more  or  less  warrant,  depending  largely  on  the  experience 
of  the  assessor,  the  time  he  can  devote  to  this  office,  and  on 
the  political  and  personal  influences  at  work.  The  assessor 
is  guided  by  the  selling  price  of  land,  by  the  rental,  and  by 
the  assessment  returns  of  the  property  owner.  An  expert, 
scientific  valuation,  on  the  other  hand,  must  be  based  on 
certain  principles  of  value  which  will  assure  uniformity  and 
accuracy,  and  which  will  eliminate  wholly  the  influence  of 
personal  and  political  considerations.  The  possibility  of 
finding  a  more  accurate  value  than  the  selling  price  may 

*  Such  was  the  opinion  of  some  of  the  expert  valuers  who  testified 
before  the  different  British  Select  Committees  {cf.  supra,  chapter  v),  and 
such  is  the  practice  of  realty  appraisers  in  the  United  States.  See  also 
Webb,  Valuation  of  Real  Estate,  p.  6. 

*  National  Conference  on  State  and  Local  Taxation  (1907),  pp.  131  ff. 
The  following  cities,  besides  those  using  the  Somers  system  of  valuation, 
also  list  the  value  of  improvements  and  site  separately:  Washington,  and 
the  cities  of  New  Jersey  and  Massachusetts.  Cf.  Report  of  Commissioners 
of  Taxes  and  Assessments  of  the  City  of  New  York  (1913),  p.  120. 

»  See  infra,  §§  13-15. 


834  THE  TAXATION  OF  LAND  VALUE 

well  be  questioned.  Indeed,  if  the  selling  price  of  every 
plot  of  land  could  always  be  had  the  difficulty  of  valuation 
would  largely  disappear.  What  is  actually  done  is  to  com- 
pare the  dififerent  lots  on  a  block,  for  example,  with  one 
whose  selling  price  happens  to  be  known.  It  is  the  basis  of 
this  comparison  that  has  been  systematized  and  made 
scientific. 

What  a  scientific  valuation  of  real  property  comprises  is 
summarized  in  the  following  resolution  which  was  adopted 
unanimously  at  the  conference  of  the  International  Tax 
Association  in  1911;  ^ 

Resolved,  that  as  steps  towards  an  equitable  and  scientific  as- 
sessment of  real  estate  we  earnestly  recommend :  that  the  method 
of  assessment  in  rem  be  extended  to  all  districts  in  all  states;  the 
preparation  and  use  of  tax  maps  in  each  taxing  district;  the  sepa- 
rate assessment  of  land  and  buildings;  and  the  use  of  standard 
units  of  measurement  as  a  basis  of  valuation  for  both  land  and 
buildings  to  assist  the  assessor  in  the  exercise  of  his  judgment, 
such  standards  of  value  to  be  determined  for  each  locality  by  its 
officials  with  the  greatest  possible  cooperation  of  its  citizens,  hav- 
ing due  regard  to  local  conditions. 

First,  then,  the  valuation  must  be  impersonal,  in  rem, 
not  in  personam;^  only  those  factors  that  influence  the 
value  of  the  site,  irrespective  of  the  owner's  particular  cir- 
cumstances, irrespective  also  of  the  influence  of  the  improv- 
ments  on  the  site,  must  be  taken  account  of  by  the  assessor. 
Secondly,  the  essential  apparatus  for  the  valuation  is  a  tax 
map.  These  maps  "shall  show  the  area,  dimensions,  and 
locations  of  the  real  property,  and  the  various  subdivisions 
of  ownership."  The  maps  shall  be  used  alike  in  assessing 
city  and  country  real  estate,  mining  and  forest  land.  In 
each  case,  however,  the  construction  of  the  map  will  vary 

>  International  Conference  on  State  and  Local  Taxation  (1911),  p.  25. 

*  The  assessment  in  rem  does  not  take  the  owner  into  account,  as  it 
were,  but  only  the  real  estate.  It  is  an  assessment  of  real  estate  geo- 
graphically located,  not  in  alphabetical  order  according  to  owner.  Cf. 
Seligman,  Essays  in  Taxation  (1918),  pp.  325-26. 


THE  TAX  IN  ITS  FISCAL  ASPECT  S35 

according  to  the  unit  of  measurement.  Thus,  the  lot  or 
block  system  for  urban  land  is  inapplicable  for  farm  land, 
for  which  the  acre  constitutes  a  more  appropriate  unit.^ 
Tax  maps  have  been  in  use  in  the  city  of  Newark,  New 
Jersey,  for  forty  years,  in  Milwaukee,  Wisconsin,  for  nearly 
twenty  years,  in  the  Province  of  Quebec  for  even  a  longer 
period. 2  In  1907,  a  "timber  cruise"  was  inaugurated  in 
King  County,  Washington;  maps  were  then  employed 
which  are  expected  to  form  an  accurate  basis  for  all  future 
valuations.^  Thirdly,  the  separate  valuation  of  land  and 
buildings  is  necessary,  because  the  causes  of  their  value  are 
different.  Fourthly,  the  selection  of  a  unit  of  measurement 
and  of  a  table  to  compute  the  relative  values  of  other  tracts 
of  land  is  requisite  to  an  efficient  valuation.  The  two  well- 
known  systems  for  computing  relative  values  for  urban 
real  estate  assessment  are  the  Hoffman-Neill  Rule  and 
the  Somers  system.* 

§  14.  The  function  of  the  table  employed  to  compute  the 
relative  values  of  different  shapes  and  sizes  of  land  is  more 
important  for  assessment  purposes  than  even  the  ascer- 
tainment of  the  accurate  value  of  the  unit,  for  it  secures 
uniformity  and  equality  in  assessment;  and  uniformity  and 
equality  even  exceed  in  importance  the  search  after  ab- 
solutely accurate  values.   The  "Hoffman-Neill  Rule"^  is 

*  L.  G.  Powers  has  classified  non-urban  land  into  eight  kinds  for  assess- 
ment purposes:  (1)  acres  under  cultivation,  or  being  used  for  meadows; 
(2)  land  not  under  cultivation,  but  capable  of  being  plowed;  (3)  land 
covered  with  a  heavy  growth  of  timber;  (4)  with  orchards;  and  (5)  acres 
properly  classed  as  waste  land  because  incapable  of  cultivation  or  of 
growing  timber;  (6)  the  number  of  acres  of  mineral  land;  (7)  of  quarry 
land;  (8)  land  valuable  by  reason  of  oil,  gas  or  other  deposits.  Interna- 
tional Conference  on  State  and  Local  Taxation  (1909),  p.  326. 

*  Ibid.  (1911),  pp.  347-48. 

*  It  is  interesting  incidentally  that  the  "cruise"  cost  $70,000,  lasted  a 
year,  but  resulted  in  an  increased  valuation  of  the  timber  land  in  the 
county  of  over  $12,000,000.,  ibid.  (1909),  pp.  335-36. 

*  For  other  rules  see  Manual  on  the  Methods  of  Assessment  of  Real 
Estate  in  New  York  City  (1914). 

*  The  "  Rule,"  first  used  in  New  York,  ia  known  by  that  name  because 


836 


THE  TAXATION  OF  LAND  VALUE 


a  table  showing  the  percentage  of  value  for  various  depths 
of  the  unit,  which  is  a  100-foot  lot,  as  follows:  ^ 


Fed 

Per  cent 

Feet 

Per  cent 

Feet 

Per  cent 

1 

.0676 

22.... 

.4123 

53.... 

.6899 

2 

.1014 

23.... 

.4232 

54.... 

.6975 

8 

.1286 

24.... 

.4339 

55.... 

.7051 

4 

.1520 

25.... 

.4444 

56.... 

.7126 

5 

.1732 

26.... 

.4548 

67.... 

.7201 

6 

.1929 

27.... 

.4650 

58.... 

.1115 

7 

.2112 

28.... 

.4751 

59.... 

.7348 

8 

.2282 

29.... 

.4850 

60.... 

.7420 

9 

.2443 

30.... 

.4947 

61.... 

.7492 

10 

.2598 

50.... 

.6667 

98.... 

.9882 

20 

.3899 

51 ... . 

.6745 

99.... 

.9941 

21 

.4012 

52.... 

.6822 

100.... 

1.0000 

Having  determined  the  value  of  one-foot  frontage,  the 
assessor,  with  the  help  of  the  above  table,  is  able  to  ascertain 
the  value  of  the  entire  lot.  The  following  is  a  description 
of  a  land- value  map  when  completed:  — 

An  outline  map  of  the  city  is  used,  subdivided  into  such  areas 
as  may  be  convenient.  On  each  side  of  each  street,  for  each  block, 
the  unit  value  of  the  normal  unit  is  entered.  Thus  the  relation  of 
value  on  one  street  with  values  on  another  street  is  at  once  ap)- 
parent.  Points  showing  high  value  will  grade  off  towards  the 
points  showing  low  values,  and  everywhere  the  values  on  one 
street  will  interlock  with  the  values  on  the  next  street  in  a  way 
that  can  be  seen,  understood,  and  explained.  Accuracy  and  pre- 
cision will  be  introduced  into  an  assessment.    The  disturbing  in- 


Judge  Hoffman  a  half-century  ago,  in  deciding  a  lawsuit  before  him,  laid 
down  the  rule  that  the  ordinary  city  lot  fifty  feet  deep  was  worth  two- 
thirds  as  much  as  an  adjoining  lot  one  hundred  feet  deep.  Cf.  Interna- 
tional Conference  on  State  and  Local  Taxation  (1911),  p.  351. 

*  Montreal  has  adopted  the  " Hoff man-Neill  Rule"  for  determining 
the  value  of  lots  of  a  greater  or  less  depth  than  one  hundred  feet.  See 
Report  of  Assessment  Department,  City  of  Montreal  (1913),  pp.  12-13, 
where  the  whole  table  of  which  the  above  is  an  incomplete  copy  is  given. 
See  also  International  Conference,  etc.  (1911),  p.  360. 


THE  TAX  IN  ITS  FISCAL  ASPECT  8S7 

fluences  of  abnormally  high  or  abnormally  low  sales  will  be  mini- 
mized, and  the  assessor  will  be  doing  what  he  ought  to  do;  namely, 
exercising  his  judgment  in  assessing  all  lots  within  a  given  area  in 
their  relative  values  to  one  another.* 

The  most  difficult  problem  that  the  assessor  encomiters 
under  this  system  is  the  valuation  of  corner  lots.  It  is  ob- 
vious that  a  corner  lot  has  more  value  than  an  inside  lot. 
There  is  no  standard  under  the  Hoffman-Neill  Rule,  how- 
ever, as  to  hovjr  much  greater  the  value  is.  "All  that  we  can 
at  present  say  on  this  point  is  that  the  consensus  of  opinion 
appears  to  be  that  corner  influence  varies  according  to  the 
use  to  which  the  property  is  put,  being  greatest  in  retail 
business  districts,  and  smallest  in  suburban  residence  dis- 
tricts." 2  The  accuracy  of  this  new  system  of  valuation, 
mechanical  and  hypothetical  as  it  may  seem,  can  be  sur- 
mised from  the  fact  that  purchases  and  sales  of  property  in 
New  York  City  are  based  on  the  same  scale  or  rule  as  the 
assessor  uses.' 

§  15.  Based  on  the  same  principle,  namely,  that  there  is  a 
mathematical  relation  between  the  values  of  the  different 
city  sites  affected  by  the  same  influences,  but  with  a  some- 
what different  method  of  computation  of  this  relationship, 
the  Somers  system  of  valuation  has  been  devised.^  This 
system  is  more  complete  than  the  Hoffman-Neill  Rule,  for 
besides  the  table  of  percentage  of  value  of  different  depths 
of  lot,  Mr.  Somers  has  worked  out  a  scheme  of  valuing 

1  Intemaiional  Conference  on  State  and  Local  Taxation  (1911),  p.  853. 
For  a  more  detailed  account  of  the  "Rule"  see  Craigen,  Practical  Methods 
for  Appraising  Lands,  Buildings,  and  Improvements. 

'  Ibid.,  pp.  353-54. 

'  In  Chicago  a  similar  plan  for  computing  the  value  of  urban  land  was 
worked  out,  but  according  to  the  Manufacturers'  Appraisal  Company,  for 
whom  Mr.  Somers  has  become  land  valuation  actuary  and  who  have  pur- 
chased control  of  his  system,  the  Chicago  plan  is  less  scientific  and  less 
accurate.  Cf.  Report  of  Manufacturers'  Appraisal  Company,  Analysis  of 
the  Chicago  Assessors^  Plan  of  Computing  Site  Values,  etc. 

*  Somers,  The  Valuaiion  of  Real  Estate  for  the  Purpose  of  Taxation. 
See  also  The  Somers  Unit  System  of  Realty  Valuaiion  (pamphlet  issued  by 
the  Manufacturers'  Appraisal  Company). 


338  THE  TAXATION  OF  LAND  VALUE 

corner  ^  and  alley  lots,  as  well  as  other  irregular  and  excep- 
tional shapes  and  sizes  of  land.  Very  noteworthy  also  is 
the  method  of  ascertaining  the  value  of  the  "unit  foot." 
"A  unit  foot  is  a  frontage  of  ground  one  foot  wide  and  100 
feet  deep,  located  in  the  central  section  of  a  block  at  a  dis- 
tance from  any  street  corner  or  other  influence  that  might 
affect  its  value,  other  than  which  it  obtains  by  reason  of 
access  to  the  life  and  business  of  the  city  through  its  own 
frontage."  ^  To  appraise  the  unit,  persons  with  a  knowl- 
edge of  urban  conditions,  and  of  realty  values  are  called 
in.  Thus  the  system  invites  publicity  and  public  interest. 
"  There  always  exists  in  cities,"  says  Mr.  Somers,^  "  a  Com- 
munity Opinion  that  a  certain  street  is  the  best  for  busi- 
ness and  a  consequent  idea  that  land  fronting  thereon  is 
the  most  valuable.  From  this  most  valuable  street  other 
streets  of  less  value  will  be  compared,  a  well-defined  opin- 
ion being  present  that  the  property  on  the  less  valuable 
street  is  less  valuable  just  in  proportion  as  the  street  is  less 
valuable,  and  the  comparison  will  reach  out  from  the  cen- 
ter or  best  p>ortion  and  embrace  the  entire  city.  .  .  ." 

To  appreciate  the  method  of  establishing  the  value  of 
the  unit  by  **  Community  Opinion  "  we  quote  the  following 
procedure  in  the  valuation  of  Cleveland:  "The  City  Ap- 
praisal Board  of  Cleveland  estimates  tentatively  the  unit 
values  of  the  various  streets,  beginning  at  the  Public 
Square  and  working  out  in  every  direction  to  the  corpora- 
tion limits.*  By  means  of  maps  and  a  campaign  of  pub- 

*  There  is  much  skepticism  among  taxing  authorities  as  to  the  prin- 
ciple underlying  Somers'  tables  for  computing  the  value  of  comer  lots. 
Mr.  Somers  keeps  his  process  secret. 

*  Vancil,  Somers  Unit  System  of  Realty  Valuation,  p.  1.      '  Op.  cit.,  p.  19. 

*  "  The  Board  adopted  the  rule  that  property  should  be  valued  on  the 
basis  of  the  best  use  of  it,  i.e.,  a  lot  in  the  business  section  which  was  being 
used  for  residence  purposes  should  be  valued  as  business  property.  The 
owner  and  not  the  public,  should  bear  the  loss  if  the  property  were  put  to 
any  other  than  its  best  use.  Another  rule  followed  was  that  thorough- 
fares, which  were  defined  as  the  main  channels  of  trade  and  travel,  should 
be  valued  uniformly  higher  than  the  minor  streets." 


THE  TAX  m  ITS  FISCAL  ASPECT 


839 


licity  in  the  city  newspapers,  these  tentative  valuations 
are  scattered  broadcast,  and  the  community  is  invited  to 
discuss  them.  At  a  series  of  pubHc  meetings  of  the  Board, 
section  after  section  of  the  city  is  covered,  many  parts  being 
gone  over  several  times,  until  all  interested  persons  are 
given  ample  opportunity  to  appear  before  the  Board  and 
submit  evidence  in  favor  of  changing  the  tentative  unit 
values.  After  being  thoroughly  debated  by  the  public  in 
this  manner,  the  unit  values  finally  agreed  to  by  the  ma- 
jority are  regarded  as  representing  the  consensus  of  opin- 
ion. These  unit  values  are  confirmed  by  the  Board,  and  are 
not  open  to  further  discussion."  ^  When  these  unit  values 
have  been  thus  agreed  upon,  the  individual  lots  are  then 
valued  in  accordance  with  a  systematic  table  or  curve  of 
values.  Corner  lots  and  those  abutting  upon  the  alleys,  and 
lots  near  corners  or  alleys  are  appraised  according  to  a 
complicated  table,  whose  underlying  principle  is  that  the 
influence  of  corner  proximity  on  the  value  of  the  lot  ex- 
tends both  ways  from  the  corner,  growing  less  as  the  dis- 
tance from  the  corner  increases,  until  it  disappears.  In  the 
following  table  the  apphcation  of  this  principle  is  illustrated 
in  part  merely:  ^ 


Ratio  of  poorer  frontage 

Ratio  of  comer  lot  to 

Ratio  of  second 

to  better 

middle  lot 

lot 

.1 

1.11 

.2 

1.14 

i.ia 

.8 

1.17 

1.03 

.4 

1.22 

1.03 

.5 

1.28 

1.04 

.6 

1.86 

1.05 

.7 

1.48 

1.06 

.8 

1.60 

1.08 

.0 

1.74 

1.10 

1.0 

1.90 

1.12 

*  Lutz,  "  The  Somers  System  of  Realty  Valuation,"  in  Quarterly  Jour- 
nal of  Economics,  vol.  xxv,  p.  174. 

*  First  National  Conference  on  State  and  Local  Taxation  (1907),  p.  132. 


S40  THE  TAXATION  OF  LAND  VALUE 

The  above  table  shows  "the  ratios  assumed  to  exist  be- 
tween the  values  of  the  corner  and  second  lots,  and  of  the 
middle  lots,  where  the  lots  are  twice  as  long  as  they  are 
broad  and  the  corner  lot  has  its  shorter  frontage  on  a  street 
where  the  frontage  is  worth  twice  as  much  per  foot  as  on 
the  side  street,  these  middle  lots  also  fronting  on  the  better 
street."  ^ 

The  Somers  system  of  valuation,  of  which  the  above 
description  is  brief  and  inadequate,  was  first  put  into  opera- 
tion by  Mr.  Somers  in  St.  Paul,  Minnesota,  as  early  as 
1896.  Since  then  the  following  cities  have  tried  the  sys- 
tem: Columbus,  Cleveland,  Ohio,  Philadelphia,  Pennsyl- 
vania, Springfield,  East  St.  Louis  and  Joliet,  Illinois, 
Denver,  Colorado,  Houston  and  Beaumont,  Texas. 

The  appraisal  of  buildings  has  also  been  systematized. 
Blank  forms  are  used  for  gathering  the  data  descriptive  of 
the  structures.  The  basis  of  the  valuation  is  the  cost  of 
reproduction  of  the  building  minus  the  value  of  the  de- 
preciation. The  cost  and  depreciation  factors  are  based  on 
the  assessor's  estimate,  the  valuation  is  then  computed 
mechanically,  the  square  foot  of  floor  space  being  the  unit 
of  calculation.^ 

The  advantages  of  a  systematized  method  of  assess- 
ment as  compared  with  the  haphazard  guess-work  of  the 
prevailing  system  need  no  elaboration.  More  than  that, 
the  scientific,  expert  valuation  on  lines  described  above  will 
exert  a  wholesome  influence  on  the  community  socially.  For 
example,  one  result  would  be  the  awakening  of  discussion 
and  interest  among  the  property  owners,  who  will  be  urged 
and  called  upon  to  appraise  the  unit  foot.  Such  participation 

*  For  the  determination  of  lots  abutting  upon  the  alley  and  of  irregular 
shap>ed  lots  "  where  a  high  value  from  one  street  overlaps  a  lower  value 
from  another  street,"  for  example,  other  methods  are  employed.  See 
pamphlets  issued  by  the  Manufacturers'  Appraisal  Company. 

*  The  Somers  Unit  System  of  Realty  Valuation  (pamphlet  issued  by  the 
Manufacturers'  Appraisal  Company),  p.  10.  See  also  Report  of  Commis' 
turners  of  Taxes  and  Assessments  of  New  York  (1913),  pp.  136-39. 


THE  TAX  IN  ITS  FISCAL  ASPECT  S41 

cannot  fail  to  arouse  public  spirit  and  interest  in  one  of 
the  most  essential,  but  shunned,  fields  of  legislation,  taxa- 
tion. The  efficiency  of  the  assessors  and  of  the  other  tax 
officials  will  also  follow;  while  the  economic  influences  of 
the  standardization  of  the  value  of  real  estate,  upon  con- 
tracting loans,  and  upon  realty  investment,  for  example, 
will  likewise  be  advantageous.  Moreover,  the  taxpayer 
will  be  able  to  compare  his  assessment  made  in  rem  with 
that  of  his  immediate  neighbors,  which  under  the  system 
of  in  personam  assessment  is  not  so  simple. 

§  16.  The  classification,  underlying  principles,  and  fiscal 
expediency  of  the  tax  on  land  value  having  been  discussed, 
there  remains  the  consideration  of  the  objections  raised 
against  its  levy.  The  most  vehement  opposition  which  the 
.  new  proposal  has  to  brook  grows  out  of  its  identification 
^'"'^  with  the  Single  Tax.  ^  The  apprehension  is  current  that  the 
tax  is  merely  the  entering  wedge  to  the  Single  Tax  regime. 
Bearing  in  mind  the  differentiation  made  between  the  two 
proposals,  however,  most  of  the  objections  vanish.  For 
example,  such  questions  as  the  elasticity  of  the  yield,  which 
for  the  Single  Tax  is  an  all-important  query,  becomes  in- 
significant for  a  subsidiary  impost.  So  also  with  regard  to 
the  discriminatory,  confiscatory  character  of  the  tax,  and 
with  regard  to  the  generally  accepted  theory  of  justice  in 
taxation.  If  the  land-value  tax  be  opposed  on  any  such 
ground,  any  of  the  numerous  excise  duties,  or  the  inheri- 
tance tax,  must  be  similarly  opposed.  On  the  contrary, 
it  has  been  argued  that  by  the  new  land  tax  the  govern- 
ment aims  merely  to  shift  or  to  impose  a  heavier  burden  of 
taxation,  occasioned  by  the  ever-increasing  budget,  on  a 
class  which  is  thought  to  be  best  able  to  bear  it;  just  as  is  its 
purpose  always  in  choosing  one  object,  rather  than  another, 

^  It  is  almost  entirely  through  fear  of  the  adoption  of  the  Single  Tax 
that  Professor  Bullock  opposes  local  autonomy  in  taxation,  as  is  in- 
dicated strongly  in  his  article  in  International  Conference  on  State  and 
Local  Taxation  (1911),  p.  271.  See  also  Prof essor  Seligman,  in  The  Survey, 
March?,  1914,  pp.  697/. 


342  THE  TAXATION  OF  LAND  VALUE* 

for  revenue  purposes;  that,  in  exempting  improvements 
from  taxation,  the  aim  is  to  appropriate  a  greater  share  of 
the  profit  arising  from  land  ownership,  and  at  the  same 
time  reheve  the  capital  invested  in  improvements  and 
buildings.  Whatever  the  social  and  economic  effects  may 
be,  the  proposal  seems  fiscally  justifiable.^  As  to  the  ex- 

*  Professor  Seligman  brings  forward  certain  objections  to  the  Herrick- 
Schaap  Bill,  a  proposal  to  untax  buUdings  in  New  York  City,  which  it 
may  be  profitable  to  touch  upon  at  this  point,  in  so  far  as  they  are  fiscal 
in  character.  (See  rAeSuroey,  March?,  1914,  pp. 697 j^.)  (1)  Concerning 
the  fiscal  theory  of  the  tax  it  violates  even  the  theory  of  "Benefits"  inas- 
much as  the  buildings  which  it  proposes  to  untax  derive  benefit  from  the 
public  expenditures.  Consider  fire  and  police  protection  (p.  700).  It  is 
noteworthy  that  in  Canada  this  has  been  urged  repeatedly  against  the  ex- 
emption of  improvements.  But  the  theoretical  objection  had  little  weight 
there,  in  view  of  the  object  to  promote  industry  and  business.  It  will 
scarcely  be  denied  that  the  high  rent  paid  by  retail  dealers,  for  example, 
enters  more  or  less  into  the  price  of  the  commodities.  Nor  will  it  be  denied 
that  in  many  urban  communities  the  tax  on  buildings  is  heavier  than  on 
other  forms  of  capital.  The  consequence  of  this  is  that  the  tax  is  borne 
not  by  the  owner  of  the  skyscraper,  but  by  the  general  consumer,  and  as 
Professor  Seligman  points  out,  by  the  big  banks,  the  big  lawyers,  etc. 
(2)  With  regard  to  the  incidence  of  the  tax  he  holds  that  so  much  of  the 
tax  as  does  not  fall  on  pure  rent,  but  falls  on  improvements  sunk  in  the 
land,  will  be  borne  by  the  tenant,  not  by  the  owner  (p.  698).  Hence  the 
increased  tax  on  that  part  of  the  land  value  will  tend  to  be  shifted  in  part 
to  the  tenant.  From  a  theoretical  standpoint,  in  urban  communities, 
land-value  increments  are  attributable  primarily  to  the  congestion  of 
population.  But,  whatever  of  the  value  added  by  the  improvements  simk 
in  the  land  escap>es  exemption  under  a  system  of  expert  valuation  may  be 
regarded  as  in  the  nature  of  old  and  fixed  structures.  The  tax  on  such  a 
value  would  as  likely  fall  on  the  owner  as  on  the  tenant,  unless  the  invest- 
ment for  rock  excavations,  etc.  were  the  general  practice.  From  a  practi- 
cable standpoint,  the  hypothetical  diflScultiies  in  valuation  have  given  the 
assessors  in  western  Canada  and  Australasia  little  concern.  Land  and 
improvements  are  there  assessed  separately  as  a  matter  of  course.  (3)  The 
introduction  of  the  tax  on  land  value  in  New  York  City  would  result  in  a 
decline  in  the  value  of  the  land  as  Professor  Seligman  points  out  (p.  701). 
This  would  not  only  narrow  the  base  of  taxation,  but  would  narrow  the 
base  of  assessment  by  which  the  amount  of  indebtedness  that  may  be 
incurred  by  municipalities  is  limited.  It  may  be  true  that  a  constitutional 
amendment  would  be  necessary  in  the  case  of  New  York  City,  and  the 
tax  may  be,  therefore,  locally  inexpedient.  But  the  principle  of  the  tax, 
and  its  expediency  elsewhere  are  not  invalidated  thereby.  It  is  interest- 
ing to  point  out  a  few  changes  which  the  tax  might  occasion  in  New  York 


THE  TAX  IN  ITS  FISCAL  ASPECT  343 

tent  to  which  the  share  of  the  state  should  be  increased,  the 
community  must  be  guided  by  local  conditions,  the  rate  of 
increase  of  value  increment  of  land,  the  amount  of  revenue 
needed,  the  expediency  of  exempting  other  forms  of  in- 
come, and  so  forth. 
There  is,  however,  one  serious  objection  which  we  have 

City.  Real  estate  is  in  this  city  assessed  at  very  nearly  the  full  value, 
and  the  land  is  listed  separately  from  the  improvements.  Assuming 
that  the  rate  of  increase  in  the  value  of  all  the  land,  which  the  tax 
commissioners  of  New  York  City  estimate  at  from  four  to  five  per 
cent  annually,  will  counterbalance  the  fall  in  value  as  the  result  of  the 
tax,  the  rate  of  tax  will  have  to  be  raised  through  the  exemption  of 
all  the  improvements.  Taking  all  five  boroughs  comprising  New  York 
City  together,  it  is  found  that  37.9  per  cent  of  the  assessment  in  1913 
was  on  buildings.  In  order,  then,  to  raise  the  same  revenue  as  in  1913, 
the  rate  of  tax  would  be  increased  from  $1.81  on  $100  to  about  $2.92. 
Whether  the  constitutional  requirement  which  limits  the  rate  to  two 
per  cent  could  be  amended  or  not,  it  is  interesting  to  note  that  in  1899 
the  rate  was  $2.48  for  Manhattan  and  $3.27  for  Queens.  This  reduc- 
tion in  tax  rate  on  real  property  since  1899  means  that  purchasers  of  land 
before  that  year,  and  in  fact  before  1902  (see  table  on  p.  92  of  Report  of 
Commissioners  of  Taxes  of  New  York,  1913),  according  to  the  principle  of 
"  amortization,"  were  granted  a  donation  as  it  were.  By  raising  the  rate 
under  the  new  system  the  long-time  owners  will  have  little  cause  to  com- 
plain. It  must,  however,  be  borne  in  mind  that  the  increased  rate  will  not 
necessitate  an  increase  in  the  amount  of  tax  for  all  landowners.  All  those 
whose  property  has  upon  it  structures  of  a  value  of  at  least  37.9  per  cent 
the  value  of  the  site  will  find  their  tax  bill  either  the  same  or  reduced 
under  the  land- value  tax;  only  those  whose  land  is  unimproved  will  bear 
a  heavier  burden.  The  fact  that  the  value  of  the  land  in  certain  sections 
of  Manhattan  is  nearly  70  per  cent  of  the  assessment  corroborates  the  con- 
tention that  the  buildings  there  are  not  as  they  should  be  to  accommodate 
the  congested  population.  Brooklyn,  the  town  of  small  dwellings,  on  the 
other  hand,  and  which  has  called  forth  recently  commiseration  on  ac- 
count of  the  excessive  assessment  (see  Cederstrom,  Unjust  Taxation) 
will  be  most  relieved  through  the  new  system,  because  the  value  of  im- 
provements in  Brooklyn  exceeds  the  ratio  existing  between  buildings  and 
land  values  in  Greater  New  York  taken  as  a  whole.  For  the  probable 
redistribution  of  tax  burden  on  the  different  classes  of  landowners  result- 
ing from  the  untaxing  of  buildings,  cf.  Haig,  Some  Probable  Effects  of  the 
Exemption  of  Improvements  from  Taxation  in  the  City  of  New  York. 

The  changes  proposed  by  the  Herrick-Schaap  Bill  will  be  slighter 
than  those  incurred  by  the  total  exemption  of  improvements  and  will  be 
discussed  in  chapter  x.  The  non-fiscal  objections  of  Professor  Seligman 
to  the  tax  are  treated  in  the  following  chapters. 


SU  THE  TAXATION  OF  LAND  VALUE 

not  yet  discussed  in  this  chapter,  namely,  the  relative  ex- 
pediency of  introducing  the  tax  on  land  value  in  urban  and 
rural  communities.  It  is  claimed  that  the  tax  would  oc- 
casion a  greater  hardship  on  rural  districts  than  on  urban 
municipalities.  The  reason  is  that  in  the  latter  the  value 
of  the  improvements  and  buildings  exceeds  the  value  of  the 
site,  whereas  in  the  coimtry  the  reverse  is  true.  Now,  if  im- 
provements are  exempted  from  the  tax,  the  rural  communi- 
ties will  bear  the  heavier  burden  as  compared  with  the 
cities.  First,  as  to  the  facts  with  regard  to  the  assessment. 
In  New  York  City,  in  Boston,  in  Montreal,  and  other  old 
cities  the  land  value  has  been  found  to  exceed  that  of  the 
improvements.  In  Greater  New  York  land  value  in  1913 
constituted  62.1  per  cent  of  the  total  assessment;  in  Mon- 
treal and  Boston  about  the  same.^  In  Brooklyn  the  per- 
centage of  building  to  land  value  was  greater  than  in  Man- 
hattan (49.8  per  cent  to  34  per  cent),  in  spite  of  the  fact 
that  the  skyscrapers  and  mansions  are  in  Manhattan.  Sta- 
tistics about  other  cities  are  unavailable  because  the  land 
and  buildings  are  not  listed  separately.  But  in  Baltimore, 
according  to  Lawson  Purdy,^  the  value  of  the  buildings  is 
fifty-six  per  cent  of  the  total  value.  In  the  rural  districts 
farm  land  has  on  the  whole  the  higher  value  relatively  to 
buildings.'  Nevertheless,  exceptions  were  found  to  this 
general  characteristic  in  a  nmnber  of  counties  in  New 
England  and  east  central  states.  In  the  following  states 
the  value  of  the  buildings  on  farms  exceeded  that  of  the 

*  Report  of  the  Commissioners  of  Taxes  and  Assessments  in  New  York 
(1913),  pp.  2&-53;  Report  of  Assessment  Department,  City  of  Montreal 
(1913),  p.  4. 

'  First  National  Conference  on  State  and  Local  Taxation  (1907),  p.  879. 

*  Taking  the  country  as  a  whole,  less  than  20  per  cent  of  the  combined 
value  of  all  the  farm  land  and  buildings  represented  the  value  of  the  build- 
ings. Oidy  in  New  England  and  the  middle  Atlantic  states  did  the  value 
of  the  buildings  on  farms  approach  near  the  value  of  the  land.  In  New 
England,  in  fact,  the  buildings  and  the  farm  machinery  and  implements 
exceeded  the  value  of  the  land.  Cf.  Thirteenth  Census  of  the  United  States 
(1910),  vol.  V,  Table  20. 


THE  TAX  IN  ITS  FISCAL  ASPECT  S45 

land  in  1910:  Pennsylvania,  in  ten  counties;  New  York, 
in  ten;  Maine,  in  nine  (total  number  of  counties,  16); 
Connecticut,  in  four;  Massachusetts,  in  two;  New  Hamp- 
shire in  one;  New  Jersey,  in  two;  Vermont,  in  four;  Rhode 
Island,  in  one.^  Moreover,  if  farm  machinery,  implements, 
etc.,  were  added  to  the  buildings,  —  a  legitimate  assumj)- 
tion  in  view  of  the  purpose  of  the  tax  to  exempt  all  im- 
provements, —  the  land  would  show  the  smaller  value  in 
many  more  cases. 

But  in  the  main  we  may  assume  that  the  value  of  the  land 
in  the  country  is  higher  relatively  to  that  of  the  structures 
than  in  cities.  What  will  be  the  burden  on  rural  land- 
owners? That  will  depend  upon  the  method  of  levy  and 
assessment.  If  the  tax  is  raised  for  state  or  even  county 
purposes,  and  is  apportioned  according  to  valuation,'^  the 
relative  burden  of  rural  districts  may  be  inordinately  in- 
creased under  the  taxation  of  land  value.  Thus,  in  Aus- 
tralasia, in  those  cases  where  the  tax  is  obligatory,  the  rural 
districts  were  said  to  be  proportionately  more  burdened 
than  the  urban  mimicipalities.  But  where  the  principle 
of  local  option  is  instituted,  local  conditions  will  deter- 
mine the  expediency  of  the  tax  in  the  various  districts.  In 
those  poorer  communities  where  land  even  has  not  a  suf- 
ficient value  to  yield  any  considerable  revenue, 'other  taxes 
must  be  levied.  It  is  noteworthy,  nevertheless,  that  in  both 
Australasia  and  in  western  Canada,  among  the  localities 
that  have  optionally  adopted  the  tax  on  land  value  are 
many  rural  communities.*  In  the  country,  when  levied  for 

*  Thirteenth  Census  of  the  United  States  (1910),  vols,  vi,  vii. 

*  As  compared  with  apportionment  by  expenditure  or  revenue.  Cf. 
Seligman,  Essays  in  Taxation  (1913),  pp.  S59ff. 

»  Ibid.,  p.  85. 

*  A  contributor  to  The  PtcUic  (August  22, 1913)  claims  that  the  reform 
in  taxation  in  western  Canada  is  a  farmers'  movement.  "  These  Canadian 
farmers  are  not  satisfied,  however,  to  have  only  municipal  taxes  levied  on 
the  land.  Their  organizations  .  .  .  have  expressed  themselves  as  in  favor 
of  levying  all  taxes.  Dominion,  Provincial,  and  Municipal  on  land  values  " 
(p.  800).  The  President  of  the  United  Farmers  of  Alberta  spoke  as  fol- 


346  THE  TAXATION  OF  LAND  VALUE 

local  purposes,  or  even  when  levied  for  state  or  county  pur- 
poses, provided  the  apportionment  of  the  quota  of  the  tax 
among  the  locaUties  is  made  according  to  the  expenditure 
of  the  respective  localities,^  the  exemption  of  structures 
will  not  increase  the  rate  of  tax  much  over  the  present  rate, 
because  of  the  relatively  small  value  of  the  buildings.  The 
solution  of  the  difficulty  raised  by  the  objection  would 
seem  to  be  local  option  in  taxation,  which  the  rural  dis- 
tricts especially  need  to  rid  themselves  of  the  tax  on  per- 
sonal property  as  well.' 

Finally,  it  may  be  asked  which  form  of  the  tax  is  fiscally 
most  expedient.  Obviously  the  reply  will  differ  according 
to  the  purpose  of  the  tax  and  the  conditions  in  the  various 
countries.  In  the  United  States,  where  real  estate  taxa- 
tion prevails,  but  where  value-increment  and  indirect  land 
taxes  are  unknown,  and  where  progressive  taxation  was 
until  recently  practically  non-existent  and  is  yet  unpopu- 
lar, the  annual,  direct  tax  would  seem  more  expedient  than 
the  European  forms.  Moreover,  we  lack  the  conditions  of 
land  tenure  of  England  to  seek  the  more  discriminatory 
forms  of  the  tax.  For  general  purposes  and  for  local  revenue 
the  exemption  of  improvements,  scientific  valuation,  and 
full  value  assessment,  would  have  the  effect  of  taxing  the 
"unearned  increment"  accruing  from  landownership, 
without  introducing  the  novel  system  of  value-increment 
and  progressive  rates.^  Nevertheless,  where  the  fiscal  con- 
lows  in  his  Annual  Report:  "Few  realize  the  importance  of,  and  what 
Single  Tax  really  will  accomplish.  Let  me  point  out  some  of  its  most  im- 
portant recommendations.  It  will  take  the  weight  of  taxation  oflF  the 
agricultural  districts,  where  land  has  little  or  no  value,  irrespective  of 
improvements,  and  put  it  on  towns  and  cities  where  bare  land  rises  to  the 
value  of  millions  of  dollars  per  acre.  .  .  .  Thus  the  farmer  would  have  to 
pay  no  more  taxes  than  the  speculator,"  etc.  United  Farmers  of  Alberta, 
Official  Report  (1912),  p.  9. 

^  Cf.  Purdy,  Local  Option  in  Taxation. 

*  Reasons  for  the  social  inexpediency  of  the  tax  on  rural  land  is  dis- 
cussed infra,  in  the  following  chapters. 

'  It  is  doubtful  whether  certain  fiscal  authorities  in  this  country  would 


THE  TAX  IN  ITS  FISCAL  ASPECT  S47 

sideration  is  not  uppermost  and  where  taxes  are  levied  for 
special  purposes,  the  value-increment  tax  has  certain  ad- 
vantages: first,  its  collection  is  simple;  secondly,  it  can  be 
levied  on  future  increment  only,  thus  interfering  less  with 
the  present  owner's  expectations  of  profit;  thirdly,  it  lends 
itself  better  to  the  progressive  scale  of  rates.  In  view  of  the 
system  of  realty  taxation  in  this  country,  however,  these 
considerations  have  less  value  for  the  United  States.* 

favor  the  value-increment  tax  in  preference  to  the  annual,  direct  tax  on 
land  value,  if  the  spectre  of  the  Single  Tax  regime  were  to  them  less  im- 
minent. 

^  The  machinery  for  assessing  and  collecting  the  direct  tax  already 
exists  in  this  country. 


CHAPTER  Vin 

THE  TAX  AS  A   SOCIAL  REFORM 

§  1.  If  it  is  true  of  all  taxes  that  the  fiscal  considerations 
are  not  to  be  divorced  from  the  economic  and  other  effects 
in  judging  of  then:  expediency,  it  is  especially  important  to 
consider  the  economic  and  social  effects  of  the  tax  on  land 
value.  As  a  modified  realty  tax,  the  proposed  changes  in- 
volved in  the  tax  on  land  value  must  be  discussed  in  all 
their  aspects.  While  no  one  will  dispute  the  expediency  and 
necessity  of  full-value  assessment  and  of  scientific  valua- 
tion of  real  property,  there  is  less  unanimity  of  judgment 
with  regard  to  the  exemption  of  improvements  from  taxa- 
tion. This  is  not  strange  when  we  consider  that  some  funda- 
mental social  problems  are  involved  in  the  proposal  to  ex- 
empt improvements.  There  is  no  agreement  upon  the 
meaning  and  prevalence  of  "unearned  increment"  and  of 
speculation  in  land,  nor  upon  the  seriousness  of  the  so-called 
housing  problem  in  the  various  communities;  while  the 
whole  problem  of  property  in  land  will  ever  remain  a  logi- 
cally controversial  one.  The  best  that  can  be  done  is  to 
attempt  to  understand  the  nature  of  the  above-mentioned 
problems  in  the  light  of  the  facts  under  the  existent  order; 
to  examine  certain  social  evils  and  the  proposed  reforms; 
and  to  test  the  efficacy  of  the  tax  on  land  value  as  a  social 
reform  by  the  effects  of  its  operation  where  it  exists. 

It  will  be  agreed  that  the  most  currently  potent  argu- 
ment for  the  taxation  of  land  value  is  that  land  rent  is  an 
"unearned"  increment.  The  justification  of  this  view  is 
based  on  the  rent  concept  explained  in  the  preceding  chap- 
ter. Now,  the  criticism  generally  directed  by  economists 
and  laymen  alike  against  the  tax  is  that  land  rent  is  not  the 
sole  differential,  that  other  incomes  are  likewise  "im- 


THE  TAX  AS  A  SOCIAL  REFORM  349 

earned."  Thus  quasi-rents  arising  from  capitalistic  enter- 
prises, from  speculation  in  general,  and  even  from  nat- 
ural ability  ^  are  likewise  called  "unearned"  increments. 
As  commonly  understood  "unearned"  increment  is  any 
surplus  value  accruing  to  an  individual  not  by  virtue  of 
sacrifice  or  exertion  on  his  part,  but  by  virtue  of  his  prop- 
erty right  to  a  commodity.  But  it  is  also  questioned  whether 
even  a  transaction  in  landed  property  does  not  involve  some 
labor  on  the  part  of  the  owner.  Whatever  view  we  admit, 
so  much  is  certain.  There  is  a  tendency  in  recent  years  to 
diflferentiate  between  income  accruing  to  labor  in  its  widest 
sense  including  entrepreneurship,  and  that  accruing  from 
the  investment  of  capital  in  any  form.  The  latter  is  com- 
monly considered  the  source  of  the  enormous  wealth  ac- 
cumulated by  individuals  which,  it  is  evident,  the  modern 
"Sozialpolitik"  would  prevent.  Misleading  as  the  term 
"  unearned  "  income  may  logically  appear,  it  will  probably 
be  retained,  since  English  and  German  legislation  has  recog- 
nized the  distinction  between  earned  and  imearned  income.* 

Just  as  in  the  case  of  monopoly  and  large  scale  capitalistic' 
production,  legislation  has  been  employed  to  check  the 
concentration  of  wealth  in  the  interest  of  the  social  well- 
being,  so  with  regard  to  the  land-value  increments,  it  is 
proposed  to  prevent  some  of  the  putative  evils  by  means 
of  a  tax.  The  fiscal  expediency  of  the  proposal  having  been 
discussed,^  the  problem  is  now  to  discover  (1)  whether 
those  putative  increments  in  land  value  are  of  widespread 
occurrence,  if  they  occur  at  all,  (2)  the  causes  and  the 
social  evils  that  ensue  therefrom,  and  (3)  the  effectiveness 
of  the  tax  to  remedy  the  evils. 

§  2.  What  are  the  facts  concerning  the  appreciation  in 
the  value  of  the  land?  The  diflBculties  encountered  in  at- 

*  Cf.  Marshall,  Principles  of  Economics  (5th  ed.),  p.  579. 

*  Cf.  the  English  income  tax  and  the  German  "Wertzuwachssteuer" 
where  the  term  "unearned"  is  employed. 

*  See  supra,  chapter  vu. 


350  THE  TAXATION  OF  LAND  VALUE 

tempting  an  answer  become  apparent  when  we  consider 

the  several  kinds  of  land,  the  lack  of  uniformity  in  the 

development  of  the  several  comitries,  the  social,  economic, 

and  physical  differences  of  communities,  and  the  inadequate 

data  due  partly  to  insufficient  information,  partly  to  the 

practice  of  assessing,  as  a  single  class  of  property,  both 

the  land  and  improvements  upon  it. 

/      To  begin  with,  it  will  be  necessary  to  classify  land  into 

/  three  main  categories:  — 

S,      (1)  Land  used  in  the  production  of  raw  stuffs,  i.e.,  agri- 

V\  cultural  land  which  forms  the  main  source  of  human  sus- 
Itenance. 
J       /     (2)  Land  necessary  for  dwellings  and  industrial  pur- 
poses, i.e.,  urban  land. 

(3)  Land  containing  the  product  in  a  form  ready  for  use 
/     —  in  contradistinction  to  that  requiring  fertilization  — 


•7- 

kl     i.e.,  mines  and  forests. 
_ 


^p^  /  The  following  considerations  make  the  distinction  be- 

/  tween  rural  and  urban  land  apparent:  First,  agricultural 
/  production  must  be  put  in  a  class  by  itself.  And  it  must 
/  be  borne  in  mind  that  as  yet  the  prevaiUng  unit  in  agricul- 

1  tural  industry  is  the  small  farm.  Secondly,  the  transition 

I  from  extensive  to  intensive  farm  cultivation  has  been  very 

much  retarded  on  account  of  the  relative  abundance  of  vir- 
gin soil.  Thirdly,  the  demand  for  urban  land  is  not  merely 
for  industrial  purposes.  The  demand  is  composite;  for  it 
is  a  demand  also  for  dwellings  by  a  comparatively  numer- 
\  ous  population  in  a  comparatively  hmited  area.  Fourthly, 

\the  unit  of  valuation  of  rural  land  is  the  acre,  as  compared 
with  the  lot  in  towns.  The  third  kind  of  land,  namely,  nat- 
ural resources  in  a  limited  sense,  must  be  differentiated 
from  the  other  kinds  for  many  reasons.  Unlike  the  other 
kinds,  mines  and  forests  belong  in  the  category  of  wasting 
assets.^    Upon  their  proper  use  or  misuse,  therefore,  de- 

*  In  a  larger  sense  this  is  true  also  of  agricultural  land  which  may  be 
used  up  through  a  careless,  extensive  cultivation. 


THE  TAX  AS  A  SOCIAL  REFORM 


351 


pends  the  welfare  of  society.  Hence  in  considering  this 
kind  of  land,  the  whole  problem  of  conservation  confronts 
us. 

In  the  following  sections,  then,  we  may  expect  to  find 
the  tendency  of  values  in  the  three  kinds  of  land  to  vary 
not  only  with  regard  to  one  another,  but  with  regard  to 
the  diverse  conditions  of  place,  population,  and  stage  of 
development. 

§  3.  The  discussion  of  agricultural  values  necessitates 
a  fm-ther  division,  for  the  lands  under  cultivation  in  the  old 
countries  are  not  comparable  to  the  virgin  soils  of  Austral- 
asia and  America.  Bearing  this  fact  in  mind,  we  shall  first 
present  some  data  regarding  the  European  situation,  and 
then  shall  endeavor  to  show  the  tendency  of  value  changes 
in  the  newer  countries. 


TABLE  SHOWING  THE  RENTAL  OF  AGRICULTURAL 
LAND  IN  THE  UNITED  KINGDOM,  1750-19041 


Year] 

Rental  in  millions  (£) 

Per  cent  of  change  in  value 

1750 

1776 

1800 

1815 

1843 

1860 

1870 

1880 

1888 

1894 

1904 

16.6 

22.4 

32.6 

46.5 

54.4 

58.3 

64.1 

69.5 

61.2 

56.2* 

52.0 

increase,  34.9 

45.5 

"       46.5 

"        17.0 

7.1 

9.1 

8.5 

decrease,  11.9 

8.1 

7.1 

*  This  figure  was  obtained  from  Mulhall,  Indxutries  and  Wealth  of  Nations,  p.  406. 

From  the  above  table  we  note  that  the  rental  value  rose 
steadily  until  early  in  the  nineteenth  century,  held  its  own 

1  Mulhall,  Dictionary  of  Statistics  (1899),  p.  341;  the  figures  before  1870 
are  estimates;  from  that  date,  the  figures  are  those  taken  from  the  Reports 
of  Inland  Revenue.   Cf.  Agricultural  Statistics  (Cd.  3870),  1907,  Table 

XXIV. 


S52  THE  TAXATION  OF  LAND  VALUE 

until  the  eighties,  although  the  percentage  of  increase 
diminished  gradually,  and  since  the  eighties  has  declined 
considerably.  The  tendency  of  agricultural  land  values  in 
the  United  Kingdom  (1781-1880)  to  fluctuate  about  an 
average,  showing  comparative  stability  and  appreciation 
in  the  price  of  the  land,  is  illustrated  also  by  the  following 
table:  — 

AVERAGE  PRICE  OF  FARM  LAND  PER  ACRE » 

1781-1800 £33.8 

1801-1820 36.2 

1821-1840 23.7 

1841-1860 36.4 

1861-1870 43. 

1871-1880 61.3 

Average  price £35.1 

Evidence  of  the  decline  in  agricultural  land  values  in 
Great  Britain  since  the  eighties  is  abundant.  For  example, 
the  Royal  Commission  on  Agriculture  of  1895  ^  quoted 
numerous  illustrations  of  the  decline  in  rental;  in  fact 
cases  occurred  where  no  rent  could  be  paid.  That  this  de- 
pression has  continued  to  the  present  the  following  state- 
ment by  Professor  Nicholson'  is  evidence:  "The  conclu- 
sion, then,  is  that  for  the  last  half  centmy  instead  of  an 
unearned  increment  from  agricultm^al  land,  there  has  been 
an  unearned  (and  certainly  undeserved)  decrement." 

Turning  to  France  the  situation  regarding  agricultural 
land  values  is  similar  to  that  in  England.  In  France  "  land 
trebled  in  value  between  1817  and  1879,  but  it  has  since 
fallen  one-third."  *  This  estimate  is  borne  out  by  the  fol- 
lowing table  showing  the  value  of  arable  land  in  France :  ^ 

*  Mulhall,  Dictionary  of  Statistics  (1899),  p.  759.  Average  prices  of 
estates  sold  in  those  years. 

*  See  Final  Report  of  the  Royal  Commission  of  Agriculture,  1894-97 
(C.  8540),  pp.  207-08;  also  Particulars  of  Expenditures  and  Outgoings, 
etc.  (C.  8125),  1896,  pp.  40/. 

'  Rates  and  Taxes  as  Affecting  Agriculture,  p.  72. 

*  Mulhall,  Industries  and  WeaWi  of  Nations,  p.  413.  ^  Ibid. 


THE  TAX  AS  A  SOCIAL  REFORM 


353 


Year 

Value  in  millions  (£) 

Per  cent  of  change  in  value 

1817 

548 
2,801 
2,986 
1,386 

1879 

1881 

1895 

increase,  319.8 

29.7 

decrease,  53.2 

From  another  source  of  information,  the  percentage  of 
decrease  in  the  value  of  agricultural  land  in  France  was 
estimated  at  less  than  appears  from  the  preceding  figures.^ 
This  more  conservative  estimate  was  derived  after  a  care- 
ful valuation  of  the  land  in  13,606  French  communes, 
covering,  therefore,  a  large  part  of  the  territory  of  France. 
From  1879  to  1884  the  rural  land  in  these  communes  was 
valued  at  783,636,000  fr.;  in  1909-10  the  value  had  fallen 
to  616,540,000  fr.,  or  21.3  per  cent.  Another  authority- 
estimates  the  dechne  in  the  value  of  farm  land  at  forty  per 
cent.*  Although  the  estimates  of  the  extent  of  the  depres- 
sion vary,  the  fact  remains  that  during  the  last  generation 
the  value  of  agricultural  land  has  considerably  depreciated. 

Belgium  has  been  likewise  affected  by  the  agricultural 
depression  of  the  eighties.  The  average  value  of  farm  land 
per  hectare  declined  from  4261  fr.  in  1880  to  2838  fr.  in 
1895,  about  thirty-one  per  cent;  the  rental  value  declined 
during  the  same  period  from  107  fr.  to  90  fr.^  Ample  evi- 
dence exists  to  show  that  this  trend  of  values  has  been 
general  throughout  Europe. 

The  causes  for  this  situation  are  not  far  to  seek.  They 
are  to  be  found  chiefly  in  the  low  prices  of  grain  due  to 
American  and  AustraUan  competition,  resulting  from  the 


*  International  Institute  of  Agriculture.  Bulletin  of  Bureau  of  Economic 
and  Social  Intelligence,  vol.  xviii,  April,  1912,  pp.  220 jf.  The  author  esti- 
mates the  depression  in  the  price  of  typical  holdings  from  600  fr.  in  1856 
to  210  fr.  in  1908,  or  65  per  cent. 

*  Cf.  Congr^s  International  de  la  ProjmStS  Fonciere  (1900),  p.  561. 

*  Annuaire  Siatislique  de  la  Belgique  (1902),  vol.  xxxin,  p.  291. 


854  THE  TAXATION  OF  LAND  VALUE 

improved  facilities  for  transportation,  and  in  the  greater 
profitableness  of  manufacturing  industries.  An  effect  which 
is  at  the  same  time  a  proof  of  the  general  condition  of  agri- 
cultural depression  in  Europe  is  the  marked  decrease  in  the 
rural  population.  For  example,  the  English  rural  popula- 
tion, which  was  42  per  cent  of  the  total  population  in  1771, 
constituted  22  per  cent  of  the  total  in  1841  and  less  since 
then;  ^  the  agricultural  population  in  Belgium  fell  from 
24.98  per  cent  to  18.79  per  cent  of  the  total  population  from 
1846  to  1895.2  jjj  Grermany  too  the  percentage  of  those  en- 
gaged in  agricultural  production  decreased  from  42.5  per 
cent  in  1882  to  28.65  per  cent  in  1907.' 

§  4.  But  while  value  decrements,  not  value  increments, 
characterize  European  farm  land,  the  opposite  tendency 
seems  characteristic  of  the  newer  countries.  Generally 
speaking,  with  the  progress  of  the  nineteenth  century  to 
the  present,  with  the  introduction  of  railroad  and  improved 
waterway  transportation,  the  superior  fertility  of  the  soil 
in  America  and  Australasia  caused  an  extension  of  the 
grain  market  to  a  world  market,  while  the  growth  in  pop- 
ulation had  the  same  effect,  an  increased  demand  for  agri- 
cultural land.  The  result  has  been  a  corresponding  in- 
crease in  the  value  of  farm  land  as  the  accompanying  table 
shows. 

It  is  obvious  that  to  determiae  precisely  the  real  in- 
crease in  the  value  of  the  land  when  farms  and  buildings 
are  classed  together  as  in  the  subjoined  table  is  impossible. 
Nevertheless,  as  the  ratio  of  the  value  of  the  buildings  to 
that  of  the  land  in  the  country  is  small,  the  degree  of  error 
in  estimating  the  percentage  of  increase  can  be  but  slight. 
It  will  be  noted  that  while  the  number  of  farms  since  1850 
increased  nearly  339  per  cent,  the  value  of  the  farm  land 

*  Weber,  Growth  of  Cities  in  the  Nineteenth  Century,  Columbia  Univer- 
sity Studies  in  Political  Science,  vol.  xi,  p.  166. 

*  Annuaire  Staiistique  de  La  Belgique  (1902),  vol.  XSXni,  p.  272. 
»  Handbuch  der  Politik,  vol.  u,  p.  263. 


THE  TAX  AS  A  SOCIAL  REFORM 


355 


INCREASE  IN  THE  VALUE  OP  FARM  PROPERTY  AND 
IN  AGRICULTURAL  PRODUCTION  IN  THE  UNITED 
STATES  1 


Year 

No.  of  farms 

No.  engaged  in 
agriculture 

Value  of  farms  and 
buildings 

1850 

1,449,073 
2,044,077 
2,659,985 
4,008,907 
4,564,641 

5,737,372 
6,361,502 

6,922,471 

8,565,926 
10,438,219 

12,659,203 

$3,271,675,426 

1860 

6,645,045,007 

1870 

7,444,054,462 

1880 

10,197,090,776 

1890 

13,279,252,649 

1900 

(13,058,007,995* 
\    3,556,639,496 
/  28,475,674,169 
\   6,325,451,628 

1910 

*  The  upper  figure  is  the  value  of  the  farm  land,  the  lower  one  that  of  the  buildings. 

and  buildings  increased  almost  964  per  cent.  Furthermore, 
during  the  last  decade,  1900-10,  the  increase  in  farm  land 
per  se  was  over  fifteen  billion  dollars,  or  118  per  cent. 

If  we  turn  to  the  conditions  in  Australasia,  it  will  be 
discovered  that  a  similar  trend  of  value  increment  exists 
there  as  appears  from  the  data  given  in  the  table  on 
page  356. 

It  would  be  possible  to  show  the  same  tendency  of  rising 
value  for  farm  land  in  the  other  Australian  states  and 
Canada  ^  and  wherever  the  development  of  the  country 
and  the  demand  for  foodstuffs  is  growing. 

§  5.  It  may  be  expected  that  with  the  further  extension 
of  the  cultivation  of  the  soil  and  with  the  closer  settlement 
of  the  country  rural  land  will  continue  to  rise  in  value  in 
new  countries  and  ultimately  in  the  European  countries. 
Nevertheless,  it  would  be  erroneous  to  assume  that  all 
farm  land  even  in  the  newer  countries  tends  to  rise  in 
value.  The  fact  is  that  the  value  of  farm  land  is  subject  to 

^  Statistical  Abstract  of  the  United  States  Census  (1910),  pp.  119,  121, 
265;  also  Report  of  the  Twelfth  Census,  vol.  v.  Table  ix. 
,   «  Cf.  Statistical  Year  Books  of  Canada  (1904, 1910,  etc.). 


356 


THE  TAXATION  OF  LAND  VALUE 


INCREASE  IN  THE  VALUE  OF  RURAL  LAND  IN 
AUSTRALASIA » 


Ywr 

Unimproved  value  of 
land  in  counties  of 
New  Zealand 

Unimproved  value  of  rural 
land  in  Victoria 

1878 

£48,212,290 

57,201,387 

57,880,233 

63,732,516 

71,747,758 

82,513.630 

99,236,462 

114,301,726 

124,560,720 

138,813,886 

152,273,929 

1888 

1891 

1897 

1902 

1904 

£77,557,628 

1906 

81,198,431 

1908 

91,025,874 

1910 

100,646,814 

1912 

106,752,622 

1913 

109  512.311 

great  fluctuation.  In  many  parts  of  the  United  States,  for 
example,  much  country  land  has  become  impoverished  and 
abandoned.  This  impoverishment  has  been  greatest  in  our 
south  central  states,  except  Alabama,  Kentucky,  and  Ten- 
nessee. There  has  also  been  considerable  impoverishment 
and  retardation  in  the  southeastern  states,  especially  in 
West  Virginia  and  Georgia;  also  in  North  Dakota,  Ne- 
braska, and  Kansas  land  values  have  depreciated  when 
cultivation  of  the  soil  had  to  be  abandoned.  West  of  the 
Mississippi  four  states  reported  a  considerable  reduction 
in  productivity.  The  total  area  of  counties  comprising  im- 
poverished land  has  been  estimated  as  307,730  square 
miles  or  10.3  per  cent  of  the  total  land  area  of  the  United 
States.^  Moreover,  16,597  square  miles,  0,6  per  cent  of  the 
total  area,  have  been  abandoned.  Half  of  this  abandoned 
land  is  in  southeastern  United  States.^  Temporary  fluc- 

^  New  Zealand  Official  Year  Book  (1913),  p.  860;  Victorian  Year  Book 
(1911-12).  p.  223.  Cf.  also,  Mulhall,  Dictionary  of  Statistics  (1911),  p. 
367. 

*  Report  of  the  National  Conservation  Commission  (1909),  vol.  i,  p.  77. 

'  Ibid.,  p.  78.  It  is  not  generally  known  that  the  oft-mentioned  aban- 


THE  TAX  AS  A  SOCIAL  REFORM  357 

tuations  frequently  occur  with  the  extension  of  production 
to  our  western  prairie  regions  as  well  as  with  the  exhaiis- 
tion  of  the  soil.  Again,  considered  for  short  periods  of 
time,  through  the  introduction  of  improvements  in  the 
methods  of  cultivation  and  the  substitution  of  intensive  for 
extensive  production  nu-al  land  values  are  very  often 
affected.^ 

Similarly,  fluctuations  are  frequent  in  Australasia  and 
Canada.  Speculation  in  these  countries  has  been  and  con- 
tinues to  be  rampant,  leading  to  "land  booms"  or  to  in- 
ordinate appreciation  in  land  value,  which  later  result  in 
precipitate  depressions.  An  illustration  from  Ontario, 
Canada,  will  make  this  tendency  of  rural  land  value  to 
fluctuate  more  apparent.  Consequent  upon  the  opening 
up  of  Manitoba,  the  value  of  farm  land  experienced  a  de- 
clme  in  Ontario  from  $625,478,706  in  1884  to  $587,246,117 
in  1894.2 

To  conclude:  (1)  The  extension  of  distant  sources  of 
grain  supply  due  to  the  improvement  of  transportation 
facilities,  along  with  social  causes,  e.g.,  dissatisfaction  with 
rural  Hfe,  changed  conditions  of  labor,  etc.,  has  been  the 
cause  of  the  agricultural  depressions  and  of  the  dechne  of 
rural  land  value  in  European  countries.  (2)  In  the  new 
world,  the  extension  of  production,  so  detrimental  to 
European  agriculture,  has  not  only  been  a  boon  to  the 
farmers,  but  is  also  the  cause  of  the  appreciation  in  the 
value  of  rural  land  of  the  country  as  a  whole.  (3)  The  gen- 
eral upward  trend  of  values  is,  however,  not  universal 
throughout  the  more  newly  opened  countries,  nor  is  the 
rise  in  value  uniform.  In  many  states  and  sections  of  the 
country,  the  value  of  rural  land  is  subject  to  great  fluctua- 
tion; in  others  the  value  remains  constant.  (4)  Although, 

doned  farms  common  in  New  England  have  been  largely  reoccupied  and 
rendered  productive  recently  by  Italian  and  French-Canadian  farmers. 
ilbid.) 

1  Cf.  Fairchild,  Rural  Wealth  and  Welfare,  pp.  300/. 

«  Statistical  Year  Book  of  Canada  (1895),  p.  303. 


358  THE  TAXATION  OF  LAND  VALUE 

as  free  land  is  taken  up  and  cultivated,  as  intensive  super- 
sedes extensive  cultivation,  and  as  the  population  in- 
creases, agricultural  land  will  tend  to  appreciate  in  value; 
for  a  long  time  to  come,  we  may  expect  to  find  constant 
values  and  decrements,  more  often  than  increments,  charac- 
teristic of  rural  land. 

§  6.  The  problem  of  determining  the  trend  of  land  value 
in  urban  communities  presents  serious  diflficulties.  The 
rise  and  growth  of  cities  in  the  nineteenth  century  have 
been  phenomenal  and  unprecedented  in  the  history  of  the 
world.  And  it  is  generally  held  that  the  movement  of  con- 
centration of  the  population  in  cities  will  tend  to  continue.^ 
Cities,  however,  do  not  always  progress  in  the  same  way, 
nor  to  the  same  degree,  the  growth  of  some  being  far  more 
rapid  than  that  of  others.  Their  relative  growth  depends 
upon  such  factors  as  differences  in  wealth,  in  the  character 
of  the  industries  undertaken,  in  the  number  of  population, 
in  topography,  in  transportation  facilities,  in  climate,  in 
the  platting  system,  and  so  forth.^  All  these  factors  in 
urban  growth  likewise  exercise  an  influence  on  the  value  of 
the  land.  The  value  of  urban  land,  indeed,  is  affected  and 
disturbed  even  by  changes  in  the  current  rate  of  interest 
(the  capitalization  rate  for  realty  varies  with  the  character 
and  use  of  the  building  and  neighborhood,  etc.),  and  by  any 
judicial  decisions  affecting  property  rights.  Other  influences 
that  are  apt  to  depreciate  land  value  are  public  or  quasi- 
public  structures,  as,  for  example,  the  elevated  roads  and 
other  so-called  "nuisances."  In  studying  the  data  pre- 
sented below,  therefore,  showing  the  general  movement  of 
values,  it  must  not  be  overlooked  that  even  in  the  most  de- 
veloped cities  there  are  districts  markedly  retrogressive 
and  deteriorated. 

The  value  of  urban  land  is,  of  course,  attributable  to  the 

*  Cf.  Weber,  Growth  of  Cities  in  the  Nineteenth  Century,  in  Columhia 
Univ.  Studies,  vol.  xi,  chap.  ix. 

*  Hurd,  "  Distribution  of  Land  Values,"  in  Yale  Review,  vol.  xi,  p.  144. 


THE  TAX  AS  A  SOCIAL  REFORM 


359 


fact  that  land  is  needed  for  residence  and  business  purposes 
and  that  the  number  of  more  desirable  sites  is  limited.  It 
may  therefore  be  laid  down  as  a  general  principle  that  in 
all  countries,  wherever  the  concentration  of  population 
and  progress  are  in  evidence,  the  value  of  land  will  tend  to 
rise.  Not  to  illustrate  any  abnormal  growth  in  value,  but 
to  show  the  general  trend  and  to  emphasize  the  extraor- 
dinary character  of  the  increase  especially  in  the  larger 
cities,  the  following  statistics  are  presented. 

In  New  York  City  the  assessed  value  of  real  estate  has 
increased  as  follows:  ^ 


Year 


1898 
1900 
1902 
1904 
1906 
1908 
1910 
1912 
1913 
1914 
1915 


Total  real  estate 


$1,856,567,923 
8,168,557,700 
3,332,647,579 
5,015,463,779 
5,738,487,245 
6,722,415,789 
7,044,192,674 
7,861,898,890 
8,006,647,861 
8,049,859,912 
8,108,760,787 


Land 


$3,367, 
3,843, 
4,001, 
4,563, 
4,590, 
4,602, 
4,643, 


233,746 
165,597 
129,651 
357,514 
,892,350 
852,107 
414,776 


Improvements 


$1,959, 
2,298, 
2,490, 
2,716, 
2,796, 
2,855, 
2.884, 


179,364 
334,522 
206,348 
222,137 
344,754 
932,518 
475,851 


In  considering  the  above  figures,  it  must  be  noted  that 
the  assessed  value  of  the  land  here  given  does  not  include 
the  value  of  the  land  owned  by  corporations,  which  is,  how- 
ever, included  in  the  total  value  of  the  real  estate;  and  that 
until  a  few  years  ago  the  assessment  was  much  below  the 
actual  value,  in  some  cases  as  much  as  thirty  per  cent  be- 
low. Since  1906  the  per  capita  value  of  the  land  itself  has 
fluctuated  from  between  eight  and  nine  hundred  dollars. 

*  Report  of  Tax  Commissioners  of  New  York  City  (1915),  pp.  20-21,  71. 
The  discrepancy  in  the  figures  between  the  separate  and  combined  values 
of  real  estate  is  accounted  for  by  the  separate  classification  of  the  real 
estate  owned  by  corporations  and  special  franchises  which  are  included 
in  the  total  value  of  real  estate. 


S60  THE  TAXATION  OF  LAND  VALUE 

In  1915,  the  per  capita  value  was  estimated  at  $816.  Allow- 
ing for  the  incompleteness  of  the  data,  the  enormous  in- 
crements in  land  value  are,  nevertheless,  evident.  In  the 
decade,  1898-1908,  the  increase  in  the  total  value  of  real 
estate  was  nearly  j^ve  thousand  millions  of  dollars,  or  262  per 
cent;  since  1908,  the  increment  has  been  again  more  than 
one  thousand  millions.  To  take  a  particidar  instance  of  the 
enrichment  of  private  individuals  by  the  enormous  incre- 
ments of  land  value,  it  was  estimated  by  the  assessors  that 
the  bare  site  on  which  Macy's  store  in  New  York  City  is 
located  was  worth,  in  1907,  $10,000,000  per  acre.^  And  lest 
this  be  considered  an  exceptional  case,  attention  is  again 
called  to  the  fact  that  for  every  additional  member  to  the 
population  of  New  York  City  the  value  of  the  land  is  en- 
hanced about  $800.2 

Similar  value  increments  have  occurred  in  London, 
where  it  has  been  estimated  that  the  increase  in  the  value 
of  the  land  from  1870-90  amounted  to  about  £7,620,000, 
annually,  and  where  every  new  inhabitant  added  during 
that  same  period  more  than  $400  to  the  value  of  the  land.' 

Or  take  Chicago  for  illustration.  The  financial  history  of 
a  quarter  acre  of  land  in  Chicago,  not  unlike  that  in  all 
the  larger  cities,  has  been  traced  as  shown  in  the  subjoined 
table." 

The  correlation  of  land- value  increments  with  the  growth 
of  population  will  be  noted.   In  the  same  connection  the 

*  First  Conference  on  State  and  Local  Taxation  (1907),  p.  401.  There  are 
sites  in  New  York  valued  at  $40,000,000  per  acre. 

*  "The  bona  fide  land  values  of  New  York  City  exclusive  of  expendi- 
tures by  the  owners  or  assessments  by  the  city  increase  about  $800  a  year 
for  every  person  who  has  been  admitted  to  the  population."  (Marsh, 
op.  cit.,  p.  23.) 

*  Weber,  Ueber  Bodenrente  und  Bodenspekulation,  pp.  1S28-29. 

*  Eighth  Biennial  Report  of  the  Illinois  Bureau  of  Labor  Statistics  (1894), 
p.  277.  The  enormous  rise  in  the  value  of  land  in  Chicago  is  even  more 
astonishing  than  that  in  New  York  City  and  London  because  the  terri- 
tory comprised  by  Chicago  is  much  greater  in  proportion  to  population 
than  in  the  other  two  cities. 


THE  TAX  AS  A  SOCIAL  REFORM 


S61 


Year 


1830 
1831 
1832 
1833 
1834 
1835 
1840 
1845 
1850 
1855 
1860 
1865 
1870 
1875 
1880 
1885 
1890 
1892 
1894 


Population  of  Chicago 

Percent 

Value  of 
one  quar- 
ter acre 

increase 
in  value 

Numbers 

Increase 

per  cent 

60 

$20 

100 

100 

22 

io 

200 

100 

SO 

40 

350 

75 

60 

67 

2,000 

467 

200 

300 

3,265 

60 

5,000 

2400 

4,470 

37 

1,500 

12,088 

170 

6,000 

233 

28,269 

134 

17,600 

250 

80,023 

183 

40,000 

129 

109,000 

36 

28,000 

178,900 

64 

45,000 

61 

298,977 

67 

120,000 

167 

400,000 

34 

92,500 

603,298 

26 

130,000 

40 

700,000 

40 

275,000 

111 

1,098,570 

57 

900,000 

228 

1,300,000 

19 

1,000,000 

111 

1,500,000 

16 

1.250,000 

26 

Per  cent 

of 
decrease 
in  value 


following  estimate  quoted  by  Mr.  Marsh  *  is  impressive: 
"  In  1818  the  United  States  gave  the  square  mile  between 
State,  Madison,  Halsted,  and  Twelfth  Streets  (Chicago) 
to  the  State  of  Illinois  to  be  held  in  trust  for  the  support  of 
the  pubUc  schools  and  the  education  of  the  children  of 
Chicago.  Except  for  one  block  between  Madison,  Dear- 
born, State,  and  Monroe  Streets,  nearly  all  of  this  square 
mile  was  sold  about  seventy  years  ago  for  less  than  $40,000. 
Within  fifteen  years  after  it  was  sold  this  square  mile  was 
worth  six  million  dollars.  To-day  its  value  is  himdreds  of 
millions  of  dollars  (without  improvements).  The  rent  from 
this  square  mile  of  land  would  be  suflficient  to  support  for  all 
time  the  entire  school  system  of  the  State  of  Ilhnois  with- 
out an  additional  dollar  of  taxation." 
The  development  of  Grerman  cities,  likewise,  has  been 


»  Op.  cU.,  p.  109. 


362 


THE  TAXATION  OF  LAND  VALUE 


and  continues  to  be  extraordinary.  From  agricultural 
values  about  1870,  land  has  risen  many  hundred  fold  in 
value  as  the  towns  grew.  Examples  have  already  been 
given  of  this  oft-cited  phenomenon.  ^  A  few  more  must  suf- 
fice here.  As  in  the  other  countries  the  metropolis,  in  this 
case  Beriin,  leads  and  exemplifies  this  tendency  best. 

The  approximate  value  of  the  area  on  Kurfiirstendamm, 
the  principal  thoroughfare  of  Charlottenburg,  a  compara- 
tively new  portion  of  Berlin,  is  shown  below:  ^ 


Year 

VoXue  in  million  marks 

Per  cent  of  increase 

1860 

1865 

1870 : 

1872 

1885 

1890 

1898 

0.1 

1.0 

2.5 

6.5 

14.0 

30,0 

50.0 

100 

1,000 

2,500 

6,500 

14,000 

30,000 

50,000 

The  value  of  the  land  in  Charlottenburg  as  a  whole  has  also 
appreciated  enormously: ' 


Value  in  million  marks 

Year 

Improved 

Per  cent  of 

Unimproved 

Per  cent  of 

land 

increase 

land 

increase 

1865 

6 

4 

1880 

SO 

400 

20 

400 

1886 

45 

50 

30 

50 

1897 

300 

566 

100 

233 

From  Professor  Conrad's  *  illustrations  of  land-value 
increments  we  quote  the  following:  "In  Frankfurt  a.  M 


m 


*  Cf.  chapter  iv,  §  7.  '  Mangoldt,  op.  cit.,  p.  62. 

*  Voigt,   P.,   Qrundrente  und  Wohnungsfrage  in  Berlin  and  seinen 
Vororten,  p.  217. 

*  Grundriss  Zum  Studium  der  Poliiiachen  Oekonomie,  vol.  i,  p.  128. 


THE  TAX  AS  A  SOCIAL  REFORM 


363 


a  period  of  fifteen  years,  1880-95,  the  land  had  appreciated 
sixty  per  cent  in  value,  while  in  Karlsruhe  it  had  increased 
from  400  to  500  per  cent  in  a  period  of  thirty  years." 

In  a  paper  delivered  before  the  Congres  International  de 
la  Propriete  Fonciere,  Professor  Philippovich  was  cited  as 
authority  for  the  case  of  a  piece  of  land  in  Vienna  whose 
present  value  increment  amounted  to  3526  per  cent  of  its 
original  value  in  1875.^  Similar  striking  instances  were 
cited  at  this  conference.  For  example,  a  certain  part  of 
Paris  was  worth,  less  than  a  century  ago,  scarcely  fifty 
centimes  per  square  metre  (5000  fr.  per  hectare) ;  this  land 
has  since  increased  699,900  per  cent  in  value.  "The  value 
increment  of  unbuilt  property  in  the  environs  of  Paris, 
that  is  suburban  land,  has  been  estimated  to  have  increased 
1,793.07  per  cent  between  the  years  1851-79."  2 

The  general  trend  of  urban  land  values  is  unmistakable. 
The  best  proof  of  this  is  the  fact  that  realty  experts  have 
been  able  to  formulate  an  approximate  scale  of  normal 
values  per  front  foot  like  the  following  one,'  "  it  being  un- 
derstood that  the  actual  highest  values  in  the  various 
cities  vary  widely  from  any  average  scale,  owing  to  the 
marked  differences  between  these  cities  in  wealth,  char- 
acter of  industries  .  .  .":  — 


City  population 

Beat  business 
per  front  foot 

Best  residences, 
per  front  foot 

25,000 

$300  to    $400 

600   "       800 

1.200  "    1,600 

1,800  "    2,400 

2,400  "    3,200 

3,600  "    4,800 

7,200  "    9,600 

23,000  "  31,000 

42,000  "  66,000 

$25  to    $40 

60,000 

40  "      76 

100,000 

76  "    150 

160,000 

100  "    200 

200,000 

100  "    300 

300,000 

200  "    500 

600,000 

1500  "  2000 

2,000,000 

2000  "  3000 

8,500,000 

6000  "  9000 

*  Congrh  International  de  la  PropriSti  Fonciere  (1900),  pp.  566-67. 

*  Ibid.  Quotation  translated  from  the  French. 

*  Hurd,  "Distribution  of  Urban  Land  Values,"  in  Yale  Review,  vol.  xi, 
p.  144. 


364  THE  TAXATION  OF  LAND  VALUE 

According  to  Lawson  Purdy,  the  president  of  the  tax 
department  of  New  York  City,  the  annual  rate  of  increase 
of  real  property  in  New  York  City  should  be  from  four  to 
five  per  cent,  since  real  property  tends  to  increase  some- 
what faster  than  the  annual  increase  in  population,  which 
is  about  three  per  cent.^ 

§  7.  In  spite  of  the  facts  cited  to  show  the  upward  tend- 
ency of  urban  land  value,  it  must  not  be  inferred  that  no 
decrements  occur.  Even  in  the  most  advanced  urban  com- 
munities, land  does  not  increase  in  value  always  and  every- 
where. Some  of  the  reasons  have  already  been  given  for 
the  occurrence  of  depreciation  in  value.^  Changes  in  the 
development  of  the  city  or  town  are  apt  to  depress  values 
in  certain  districts.  For  example,  when  the  utilization  of 
land  either  for  business  or  residence  purposes  declines,  the 
value  of  the  land  likewise  declines.  Sometimes  through 
changes  in  the  internal  structure  of  the  city,  e.g.,  when  the 
residence  section  is  superseded  by  industrial  undertakings, 
or  when  a  factory  and  a  foreign  population  invade  a  neigh- 
borhood, values  are  adversely  affected.  Sometimes  districts 
retrograde  because  of  encroachments  of  public  utiUties  or 
so-called  "nuisances."  '  As  a  general  rule  retail  property 
tends  to  follow  the  best  residence  section,  while  wholesale 
business  replaces  retail  property  or  changes  its  location  so 
as  to  be  near  the  wharves  and  railroad  terminals.* 

Besides  decrements  that  reflect  changes  in  the  city's 
development,^  urban  land  has  often  experienced  a  deprecia- 

*  Report  of  the  Commissioners  of  Taxes  and  Assessment  of  the  City  of 
New  York  (1909),  p.  17;  (1908),  p.  7. 

*  Cf.  supra,  §  6. 

*  The  improvement  of  transportation  facilities,  moreover,  such  as  the 
construction  of  elevated  roads,  may  cause  a  decline  in  land  value  by  open- 
ing up  suburban  land.  Some  public  improvements  such  as  parks  in- 
crease values  generally.  Cf.  Real  Estate  Magazine,  November,  1918,  pp. 
61/. 

*  Cf.  Practical  Real  Estate  Methods  (1909),  pp.  202-03. 

*  There  are  many  other  causes  than  changes  in  the  population.  The 
New  York  Tax  Commissioners  found  that  the  owners'  failure  to  replace 


THE  TAX  AS  A  SOCIAL  REFORM  865 

tion  in  value  because  of  a  previous  overvaluation.  For 
example,  take  the  case  of  the  quarter  acre  of  Chicago  land 
whose  changing  value  has  been  tabulated.^  Had  the  com- 
plete original  table  in  which  the  annual  changes  were  traced 
been  reproduced,  it  would  have  been  observed  that  in  the 
sixty-five  years,  from  1830  to  1894,  decrements  in  its  value 
had  occurred  seventeen  times.  ^  Indeed,  Chicago  is  an 
illustration  of  fluctuating  values  in  real  estate.  As  a  result  of 
the  speculation  and  overcapitaHzation  of  land,  Chicago 
real  estate  is  said  to  be  valued  to-day  on  an  1889  basis,'  for 
the  expected  rentals  on  which  the  value  of  the  land  was 
then  based  have  failed  to  materialize.  For  example,  in  1851 
certain  sites  on  Twenty-fifth  Street  were  valued  at  $250  per 
acre;  six  years  later  the  value  had  risen  to  $5000;  after 
three  years  it  sold  for  $25,000;  in  1862  the  value  fell  to 
$20,000,  after  which  the  property  was  improved,  its  value 
rising  enormously  until  1900,  when  it  sold  for  only  one-half 
its  value  twenty  years  earHer.*  According  to  a  real  estate 
dealer  this  example  is  typical  of  Chicago  property.  "Real 
estate  is  now  selling  about  on  an  1889  basis.  It  reached  high 
figures  in  the  early  seventies,  too  high  for  that  time,  and  it 
required  some  fifteen  or  twenty  years  for  the  city  to  reach 
the  values  fixed  in  1873;  but  while  the  city  was  growing  to 
these  values,  the  values  themselves  were  falling  back,  so 
that  somewhere  about  1885  real  estate  was  selling  at  about 
what  it  was  worth.    Another  upward  movement  in  the 

their  obsolete  buildings  with  new  ones  resulted  in  lower  returns  and  the 
depreciation  of  land  value.  See  Report  of  Commissioners  (1913),  p.  8. 

*  Supra,  §  6. 

*  These  decrements,  it  is  noteworthy,  occurred  in  1837,  again  in  1857, 
again  in  1873,  showing  the  effect  of  the  panics  and  hard  times  on  the  value 
of  realty. 

*  That  is  because,  on  account  of  the  immense  territory  of  Chicago  and 
on  account  of  the  easy  transportation  facilities,  the  congestion  of  popu- 
lation is  less  imminent.  This  is  shown  by  the  comparative  average  value 
of  land  quoted  in  the  Chicago  Tribune,  August  26,  1913,  as  follows:  the 
average  for  Pittsburgh  was  $19,096;  for  New  York  City,  $19,887;  for 
Chicago,  only  $8138. 

*  Chicago  Red  Estate  News  (1909),  p.  186. 


see  THE  TAXATION  OF  LAND  VALUE 

early  nineties  carried  values  some  ten  years  ahead  of  real 
conditions.  The  city  began  rapidly  to  overtake  these 
values  while  the  values  themselves  fell  back  to  meet  real 
conditions.  This  process  has  gone  on  now  for  fifteen  years. 
Since  the  World's  Fair  a  new  city  has  been  added  to  each 
of  the  sides  of  the  river,  wealth  has  accumulated,  public 
improvements  have  been  made,  every  token  which  goes  to 
make  a  great  metropohs  has  come  into  evidence,  but  the 
real  estate  pendulum  has  only  begun  to  swing  upward."  ^ 

In  still  another  way  are  depreciations  hkely  to  occur  for 
a  shorter  or  longer  period.  Whenever  the  attempt  to  build 
artificial  towns  or  cities,  "  paper  towns,"  fails,  the  result  is 
disastrous  to  the  value  of  land.  In  Kurd's  words i'^  "An 
apparent  exception  to  the  general  law  of  no  value  in  the 
site  when  the  city  starts  occurs  where  cities  are  specula- 
tively undertaken  and  the  future  is  discounted,  lots  selling 
at  comparatively  high  prices  in  advance  of  utility.  The 
difference  between  price  and  value  is  usually  demonstrated 
before  many  years,  the  swing  of  the  pendulum  carrying 
these  lots  as  far  below  their  value  as  prices  were  formerly 
above  it.  Thus  lots  in  Columbus,  Ohio,  which  sold  in  1812 
at  $200  to  $300,  sold  in  1820  at  $7  to  $20,  and  of  recent  in- 
stances there  are  many,  such  as  the  collapses  in  the  early 
history  of  the  speculatively  started  towns  of  West  Superior, 
Wis.,  Tacoma,  Wash.,  Everett,  Wash.,  and  Birmingham, 
Ala." 

§  8.  With  regard  to  the  third  class  of  land,  namely, 
mines  and  forests,  the  problem  is  of  a  different  character. 
We  are  here  concerned  with  the  problem  of  the  conserva- 
tion of  natural  resources.  Mineral  and  forest  lands  are, 
moreover,  distinguished  from  each  other  by  the  important 
fact  that  when  exhausted  or  used  up  minerals  cannot  be 
replaced,  while  forests  can  be  cultivated  provided  a  suf- 

*  Chicago  Real  Estate  News  (1909),  p.  186. 

'  "  Distribution  of  Urban  Land  Values,"  in  Yale  Review,  vol.  xi,  pp. 
126-27. 


THE  TAX  AS  A  SOCIAL  REFORM  367 

ficiently  long  time  is  allowed.  Nevertheless,  as  operated 
to-day  forests  as  well  as  mines  may  be  regarded  as  wast- 
ing assets.  The  United  States  Conservation  Commission 
estimated  that  at  the  present  increasing  rate  of  production 
the  coal  supply  of  the  United  States  will  be  near  exhaustion 
before  the  middle  of  the  next  century,  and  that  the  high- 
grade  iron  ore  will  not  last  beyond  the  middle  of  the  pres- 
ent century;  so  with  the  known  supply  of  petroleum  in  the 
United  States.  "The  consumption  of  nearly  all  our  min- 
eral products  is  increasing  far  more  rapidly  than  our  popu- 
lation. In  many  cases  the  waste  is  increasing  more  rapidly 
than  the  number  of  our  people.  In  1776  but  a  few  dozen 
pounds  of  iron  were  in  use  by  the  average  family;  now, 
cm*  annual  consumption  of  high-grade  ore  is  over  1200 
pounds  per  capita.  In  1812  no  coal  was  used;  now,  the  con- 
sumption is  over  five  tons  and  the  waste  nearly  three  tons 
per  capita.**  ^ 

As  regards  our  forests  there  are  to-day  over  200,000,000 
acres  less  forest  land  than  there  were  originally.  "We  take 
from  our  forests  each  year,  not  counting  the  loss  by  fire, 
three  and  one  haK  times  their  yearly  growth."  ^  Of  the 
coimtries  exporting  timber,  only  three,  Russia,  Finland, 
and  Sweden,  "  have  increased  their  exports  to  great  extent 
without  encroaching  on  their  timber  capital." '  Yet, 
in  spite  of  the  substitutes  for  timber  for  various  purposes, 
the  consumption  of  timber  has  increased  many  fold. 

In  these  circumstances  the  value  of  mineral  and  forest 
land  has  enormously  appreciated.  And  taking  these  lands 
as  a  whole,  the  upward  trend  of  values  will  continue  as  the 
opening  of  inferior  mines  is  necessitated,  and  as  the  sup- 
ply of  timber  is  lessened.  But  the  exhaustion  of  these  nat- 
ural resources,  unless  a  pohcy  of  conservation  is  pursued, 
is  inevitable.  Moreover,  as  regards  particular  mines  or 
forests,  under  ordinary  circumstances,  when  the  resources 

*  Report  of  the  National  Conservaiion  Commission  (1909),  vol.  i,  p.  16. 
«  Ibid.,  p.  58.  »  Ihid.,  vol.  ii,  pp.  351. 


368  THE  TAXATION  OF  LAND  VALUE 

give  out  the  value  increments  do  also.  Great  fortunes  have 
been  made  through  the  increased  value  of  natural  resources 
and  great  fortunes  will  continue  to  be  thus  gained,  but  the 
process  is  limited.  This  class  of  land,  then,  is  not  only  to 
be  differentiated  from  the  other  two  classes;  but  the  prob- 
lem presented  by  it  is  also  of  a  different  character  from  that 
which  either  the  agricultural  or  urban  land  presents.^ 

§  9.  If  we  summarize  the  results  concerning  the  three 
kinds  of  land  we  shall  answer  the  inquiries:  First,  what 
gives  land  its  value  and  its  value-increment?  Secondly, 
what  factors  distinguish  one  kind  of  land  from  each  of  the 
others?  Thirdly,  what  problems  does  the  phenomenon  of 
increments  and  decrements  present? 

Scarcity,  not  of  land  as  such,  but  of  the  various  grades  of 
land,  depending  upon  the  fertility,  location,  or  richness  of 
deposit,  is  the  cause  of  the  value  of  land.  Land  as  a  non- 
reproducible  good  becomes  subject  to  monopoly  price, 
whenever  the  demand  for  a  certain  quality  or  kind  exceeds 
the  supply.  This  demand,  which  is  reflected  in  the  high 
value  or  value  increment,  is  created  by  an  ever-increasing 
population  and  progress.  By  the  latter  are  meant  the 
changes  in  mode  of  life,  pleasures,  and  comfort  which  oc- 
casion a  proportionately  greater  demand  for  all  products, 
including  urban  land.  Granting  that  the  population  will 
grow  and  progress  continue,  we  may  assume  that  higher 
values  wiU  follow  in  all  three  classes  of  land.  That,  how- 
ever, is  a  hypothesis  concerned  with  the  remote  future.  At 
present  the  problem  is  practically  different  for  each  kind 
of  land  and  it  is  with  the  present  conditions  that  we  are 
here  concerned. 

To-day,  in  the  case  of  agricultural  land,  the  fact  that 
decrements  in  value  prevail  in  the  older  countries  shows 
that  there  exists  no  world  scarcity  of  farm  land  below  a 

^  In  essence  there  is  less  difference  between  agricultural  land  and  for- 
ests, for  example.  Both  need  to  be  conserved.  In  the  present  era,  however, 
the  problem  of  conservation  is  not  the  same  for  both. 


THE  TAX  AS  A  SOCIAL  REFORM  369 

certain  grade.  And  the  fact  that  in  new  countries  agricul- 
tural land  tends  to  appreciate  in  value  in  some  sections, 
but  to  depreciate  in  others,  shows  exceptionally  favorable 
conditions  of  the  soil  which  render  the  competition  with 
foreign  countries  and  with  other  parts  of  the  same  coun- 
try profitable.  Here,  then,  there  is  no  problem  of  discrim- 
inatory legislation  to  divert  to  the  cofTers  of  the  state  the 
excessive  profit  accruing  from  the  rise  in  the  value  of  land. 
On  the  contrary,  the  government  may  find  it  expedient  to 
promote  the  profit  of  the  farm  owners  in  the  interest  of 
greater  and  cheaper  production. 

With  regard  to  urban  land,  on  the  other  hand,  the  prob- 
lem of  monopoly  value  becomes  more  acute.  Every  person 
added  to  the  urban  population  affects  the  value  of  the  land 
more  or  less.  The  tendency  of  urban  land  value  to  appre- 
ciate is  unmistakable.  The  result  is  that  the  owners  of  this 
commodity,  land,  reap  the  ever-increasing  profit  at  the 
expense  of  the  consumers,  the  tenants.  The  first  problem, 
therefore,  is  that  of  the  distribution  of  the  value  increment 
of  the  land.  But  the  universal  need  on  the  one  hand,  and 
the  scarcity  of  the  commodity  on  the  other,  raises  a  second 
question,  namely,  does  the  present  system  of  land  tenure 
insm*e  the  best  utilization  of  the  land;  since  apy  misuse  of 
the  land  by  self-seeking  individuals  affects  the  social  well- 
being.  The  evils  charged  to  the  present  system  of  tenure  I  ^^ 
are  briefly:  (1)  speculation  in  land;  (2)  the  so-called  housing^J--''''''**^ 
problem;  (3)  the  misuse  of  natural  resources.  I 

y'^^^The  charges  against  speculation  in  land  are  that  it  fosters      I 
V  the  monopolization  of  an  indispensable  commodity;  that       j 
y    it  artificially  screws  up  the  value  of  land;  that  it  enriches 
/     one  class  at  the  expense  of  society  in  general.  It  is  claimed 
I      that  in  cities  a  great  deal  of  ripe  building  land  is  kept  out 
S    of  use  by  speculators  who  wait  to  pocket  the  profits  arising 
from  the  appreciation  in  value.   In  this  way  they  control 
or  affect  the  supply  Hke  other  monopolists,  and  through 
this  practice  rent  in  urban  communities  is  unnecessarily 


THE  TAXATION  OF  LAND  VALUE 

exorbitant.  As  a  further  result,  it  is  contended,  the  masses, 
upon  whom  the  expenditure  of  rent  falls  most  heavily  as 
compared  with  the  wealthier  classes,  are  compelled  either  to 
resort  to  poorer  dwellings,  in  the  unsanitary  and  congested 
districts,  or  to  give  up  a  greater  proportion  of  their  income 
for  rent,  leaving  other  urgent  wants  unsatisfied.  It  is 
further  charged  that  the  private  appropriation  of  land 
value  breeds  and  perpetuates  an  idle  class  who  contribute 
nothing  to  the  improvement  of  the  land  or  to  social  well- 
being.  Such  are  the  criticisms  and  problems  which  the 
phenomenon  of  urban  land-value  increments  awakens. 

As  for  mines  and  forests  where  speculation  is  also  ram- 
pant, it  is  not  so  much  the  matter  of  distribution  of  the 
value,  as  the  matter  of  conserving  the  natural  resources, 
which  calls  for  solution.  Yet,  it  must  not  be  overlooked 
that  in  this  country,  at  any  rate,  the  mineral  and  forest 
wealth  is  in  the  possession  of  a  comparatively  small  group 
of  persons,  who  practically  control  the  prices  of  the  nat- 
ural products.  The  recent  protests  of  the  governments 
against  the  wasteful  management  of  the  natural  resources 
which  is  a  menace  to  social  welfare  is  proof  of  the  necessity 
for  reform.  As  regards  this  class  of  land,  therefore,  the 
most  expedient  use  of  the  resources  must  be  considered. 

All  the  above-mentioned  problems  fundamentally  in- 
volve the  expediency  of  private  land  ownership.  Before, 
however,  the  latter  is  even  considered,  certainly  before 
any  conclusions  can  be  reached,  it  is  necessary  to  raise  the 
questions:  How  rampant  is  speculation  in  land?  What 
evils  does  it  create?  What  are  the  extent  and  effect  of  bad 
housing?  It  is  to  the  examination  of  these  conditions  that 
we  now  turn. 

§  10.  That  speculation  in  land  exists  needs  no  elaborate 
proof.  The  value  of  land  is  subject  to  change,  and  the  es- 
sence of  speculation  in  any  commodity  consists  in  the  anti- 
cipated fluctuations  in  its  value.  Yet  there  is  a  marked 
distinction  between  the  speculation  in  land  and  that  in 


THE  TAX  AS  A  SOCIAL  REFORM  S71 

other  commodities  which  deserves  mention.  We  note  that 
practically  no  real  estate  stock  is  sold  on  the  stock  ex- 
change in  this  country/  and  that  no  dealings  in  realty  on 
the  other  exchanges  occur.'^  The  explanation  for  this  lies  in 
the  peculiarity  of  land  speculation,  namely,  that  no  short 
selling  in  land  occurs.  Land  speculation  is  always  "  bul- 
lish." 3 

The  fact  seems  to  be  that  of  all  investments  real  estate 
is  considered  the  safest  and  as  yielding  the  most  permanent 
income.  "  Nothing  is  more  solid  and  permanent,  more  en- 
during in  its  nature  and  steadier  in  its  value  during  cycles 
of  time.  Land  cannot  be  destroyed,  burned  up,  carried 
away  by  thieves,  worn  out  or  lost,  nor  can  its  real  value  be 
*  watered*  by  exploiters  and  impaired  by  the  peculations 
and  speculations  of  dishonest  bank  or  corporation  offi- 
cials." ..."  It  has  been  proved  that  the  element  of  gamble 
in  realty  is  less  than  in  any  other  venture.  Life  itself  is  not 
so  certain.  ..."  *  It  is  said  that  no  commodity  is  so  little 
affected  in  value  during  depressions  as  land.  Some  one  has 
described  the  cycle  of  speculation  somewhat  as  follows: 
At  the  beginning  of  a  "boom"  period  there  is  but  slight 
demand  for  real  estate;  at  such  times  even  realty  dealers 

*  In  New  York,  for  example,  the  stock  of  only  one  real  estate  company 
is  listed  on  the  Stock  Exchange.  Cf.  Practical  Real  Estate  Methods,  p.  273. 

*  So,  too,  guaranteed  real  estate  mortgages  are  not  attractive  to 
speculators.  Real  Estate  Magazine,  October,  1912,  p.  55. 

*  Dr.  Eberstadt  calls  attention  to  this  fact  as  follows:  "  Speculation  in 
land  is  one-sided  speculation;  it  differs  decidedly  from  other  kinds  of 
speculation,  such  as,  for  example,  speculation  in  stocks  and  grain.  In  the 
latter,  the  bids  are  up  and  down  ('long'  and  'short'),  and  in  such  trans- 
actions two  parties  try  synchronously  to  further  their  diametrically  op-  ^ 
posed  interests.  In  land,  on  the  contrary,  no  one  can  speculate  'short';' 
without  exception  speculation  tends  to  bring  about  a  rise  in  price.  Irre- 
spective of  the  ownership,  speculative  land  values  are  always  '  bullish.' 
By  this  very  fact  speculation  in  land  assumes  a  singular  position  as  com- 
pared with  all  other  objects  of  speculation."  Translated  from  Die  SpelcU' 
laiion  im  neuzeitlichen  Stddtebau,  pp.  30-31. 

*  By  an  enthusiastic  realty  dealer.  SeeChic&go  Real  Estate  News  (1909), 
p.  186;  also  Kirkman,  "  Real  Estate,"  in  Biuinets,  Commerce  and  Finance 
(1910),  p.  819. 


S7«  THE  TAXATION  OF  LAND  VALUE 

turn  to  the  stock  market.  Everybody  invests  in  personal 
property.  Then  the  demand  for  realty  improves,  and  so 
does  its  value.  Although  real  property  is  the  last  thing  to 
be  affected,  the  speculative  mania  does  finally  set  in, 
screwing  up  the  value  of  land.  The  result  is  an  overvalua- 
tion of  property  that  cannot  last  long.  As  some  one  put  it, 
"after  real  estate  speculation  comes  the  deluge."  ^  It  is 
these  "fictitious"  values  that  when  the  panic  sets  in  need 
readjustment  for  the  most  part.'^  Aside  from  this  element  of 
safety  and  aside  from  the  "bullish"  character  of  the  specu- 
lation in  land,  the  fact  that  real  estate  security  constitutes 
poor  collateral  for  banks,  makes  this  class  of  property  a 
less  attractive  commodity  for  exchange  speculation.  Thus 
speculation  in  land  must  be  placed  in  a  class  by  itself.* 

§  11.  Since  the  essence  of  speculation  is  to  buy  cheap  and 
sell  dear,  we  find  the  best  examples  of  land  speculation  in 
new  settlements  where  there  is  an  abundance  of  free  land, 
e.g.,  in  the  United  States  when  first  settled,  the  Austral- 
asian colonies,  or  western  Canada.  With  the  extended 
use  of  minerals  in  industry,  mines  formed  an  especially 
fertile  field  for  speculators.  And  as  urban  communities  as- 
sumed greater  and  greater  importance,  a  fmlher  field  was 
opened  up  for  speculative  operations.  So  long  as  free  and 
cheap  land  existed,  the  speculator  was  generally  an  indi- 
vidual. All  he  had  to  do  was  to  invest  in  a  piece  of  land  in 

1  Carney,  How  to  Buy  and  Sell  Real  Estate  at  a  Profit,  pp.  202,  207. 

*  While  stocks  fell  during  1907  more  than  half  in  value,  real  estate  values 
were  said  to  have  depreciated  very  little  and  there  were  fewer  foreclosures 
than  in  normal  times.  Practical  Real  Estate  Methods,  pp.  232-33. 

*  This  anomalous  character  of  the  real  estate  market  explains  what  to 
Mr.  Cederstrom  (cf.  Unjust  Taxation)  seems  irreconcilable,  namely,  the 
continued  increase  of  real  estate  assessments  in  New  York  City  diu-ing  a 
time  of  a  depressed  market  for  real  estate.  The  fact  that  p>eople  prefer 
some  other  investments  to  real  property  by  no  means  signifies  that  real 
property  has  fallen  in  value.  There  is  no  overproduction  or  oversupply 
as  in  case  of  reproducible  and  perishable  commodities.  While  the  market 
activity,  no  doubt,  in  the  case  of  real  estate  also,  is  an  index  to  general 
values,  yet  the  actual,  stable  value  of  land  will  rise  without  a  market,  pro- 
vided the  demand  for  dwellings  and  raw  materials  continues  to  rise. 


THE  TAX  AS  A  SOCIAL  REFORM  875 

a  district  which  he  expected  to  develop,  sit  down  and  wait 
until  the  anticipated  value  was  realized.  For  example, 
lots  in  the  Bronx,  New  York,  which  sold  in  the  eighties  for 
$200  are  now  valued  at  $16,000  to  $18,000  apiece.  One 
who  at  that  time  invested  $60  or  $65,  if  he  retained  posses- 
sion, can  now  sell  the  land  for  $6500  to  $7000.^  The  returns, 
to  be  sure,  were  not  immediate,  but  one  of  the  cardinal 
traits  of  the  land  speculator  is  patience.  Here  is  an  actual 
illustration  of  a  speculative  transaction:  In  1853  Morris 
sold  to  Nimphius  a  parcel  of  land,  150  feet  front,  for  $300; 
in  1895  two  lots  of  the  parcel  were  sold  for  $9500.  The  fol- 
lowing year  the  owner  received  from  the  city  for  exercising 
its  right  of  eminent  domain,  for  9  feet,  $40,000.  In  1900 
he  received  $70,000  for  the  balance  of  the  land,  making  on 
his  outlay  of  $300,  $119,500,  be^des  the  usufruct  of  the 
property  for  fifty  years. ^  Another  person  similarly  reaUzed, 
on  an  investment  of  $8000,  $295,000  plus  the  rent  of 
$4000  to  $5000  annually.  In  this  connection  it  may  be 
pointed  out  that  many  of  the  milUonaires  owe  their  vast 
fortunes  in  part  to  land-value  appreciations.  The  Astor 
fortune  of  $450,000,000  is  a  standard  example.  Accord- 
ing to  one  writer  '  eighty-nine  per  cent  of  the  million- 
aires started  with  real  estate  investments,  and  sixty  per 
cent  continue  to  invest  in  it  largely. 

But  land  speculation  is  no  longer  the  same  as  it  was  even 
a  generation  ago.  Of  coiu*se,  to  this  day,  let  the  building  of 
a  railroad  or  a  subway  be  contemplated  and  the  surround- 
ing ground  becomes  appropriated,  to  be  sold  at  a  profit  in 
the  future.  Or,  let  a  new  mine  be  discovered,  and  not  only 
the  mine  but  the  country  round  about  is  soon  in  the  hands 
of  promoters  or  speculators.  "  Long  Island's  waste  land," 
quotes  Marsh,*  "is  much  of  it  held  now  by  speculators 

»  Practical  Real  Estate  Methods,  p.  349.  »  Ibid.,  p.  354. 

»  Real  Estate  News  (1909),  p.  186.  Quoted  from  Cincinnati  Real  Estate 
Bulletin. 
^   *  Op.  cU.,  p.  70. 


S74  THE  TAXATION  OF  LAND  VALUE 

who,  paying  no  taxes  to  speak  of  and  undoubtedly  in  many 
cases  none  at  all,  can  afford  to  wait  for  the  natural  rise.  .  .  .** 
In  Brooklyn,  where  a  subway  is  waiting  construction, 
20,000  lots,  assessed  at  a  value  of  $15,000,000,  are  in  the 
hands  of  speculators,  who  are  waiting  for  the  value  incre- 
ments.^ Speculation  in  suburban  and  vacant  land  to-day, 
however,  is  mainly  in  the  hands  of  realty  dealers  or  of  "  de- 
velopment" companies.  Land  speculation,  according  to 
realty  men  themselves,  is  a  profession,  the  four  requisites 
of  the  speculator  being  time,  capital,  courage  and  judg- 
ment.2  "The  real  estate  operator  at  one  time  was  a  drone 
in  the  community.  He  was  really  a  real  estate  speculator, 
would  buy  and  sell  at  a  profit,  but  would  do  nothing  him- 
self to  create  increased  value.  To-day  realty  operating  is 
a  profession,  and  the  speculative  side  is  very  unimportant." 
That  is,  the  real  estate  operator  must  be  familiar  with  the 
market  situation,  with  the  economic  conditions  which  in- 
fluence values,  and  he  must  recognize,  too,  the  social  forces 
which  tend  to  build  up  the  community. 

In  this  country,  speculators  in  land  are  in  the  main 
individuals,  while  realty  corporations  are  comparatively 
few; '  in  Germany,  on  the  contrary,  the  latter  are  said  to 
control  realty  operations.  In  the  German  cities,  especially 
in  Berlin,  professional  realty  speculation  is  said  to  flourish 
as  nowhere  else.  These  corporations  resemble  the  so-called 
"development"  companies  of  this  country  in  that  build- 
ing forms  part  of  their  operations.  It  is  claimed  that 
the  seventy-three  or  more  "  Terraingesellschaf ten "  have 
practically  controlled  building  operations  in  Berlin  and  its 
suburbs.    In  fact  the  magnificent  apartment  houses  of  un- 

•  Marsh,  op.  cit.,  pp.  108-09.  "  It  is  stated  that  withm  five  years  after 
the  completion  of  the  Market  Street  subway-elevated  road  in  Philadel- 
phia the  assessed  valuation  of  the  property  within  its  sphere  of  influence 
increased  in  value  by  $130,000,000.  The  cost  of  the  subway  was  in  the 
neighborhood  of  $20,000,000."  Real  Estate  Magazine.  July,  1913,  p.  84. 

•  Practical  Real  Estate  Methods,  p.  235. 

•  In  Illinois  realty  corporations  are  forbidden  by  law. 


THE  TAX  AS  A  SOCIAL  REFORM  375 

iform  size  and  structure  in  and  around  Berlin  are  attrib- 
uted to  the  activity  of  these  speculators.  The  extent  and 
character  of  these  operations  is  shown  in  the  following 
statement  by  an  American  realty  agent:  *  "I  have  great 
respect  for  the  magnitude  of  our  realty  operations  in  New 
York,  but  Berlin  can  make  us  sit  up  and  take  notice  when 
it  comes  to  buying  undeveloped  suburban  land  and  taking 
chances.  Imagine  a  seventeen-million  dollar  deal  in  vacant 
lots  in  New  York.  Recently  a  part  of  the  Tempelhof 
Parade  Ground  was  bought  by  a  syndicate  from  the  gov- 
ernment for  72,000,000  Marks."  Then  he  tells  how  the 
Schoenberg  apartment-house  quarter  was  founded  by  the 
President  of  the  Berlin  Realty  Company,  which  has  paid 
one  hundred  per  cent  dividends  annually  for  years.  The 
president  formed  a  syndicate  and  bought  the  site  which 
ten  years  ago  had  been  farm  land.  "  It  took  him  several 
years  to  get  control  of  what  he  wanted  and  he  then 
started  to  lay  out  model  streets  on  curved  lines."  This 
land  was  afterwards  sold  to  building  contractors,  but  the 
realty  company  retained  control  of  the  architectural  de- 
signs. In  this  manner  some  sections  of  Charlottenburg, 
Grlinewald,  and  other  suburbs  were  foimded.^ 

§  12.  From  the  social  standpoint  it  is  questionable 
whether  this  changed  character  of  land  speculation  is  an 
improvement.  To-day  the  professional  land  speculator 
and  the  building  operator  are  generally  combined  in  the 
same  person.  Or  they  form  a  corporation.  The  methods  of 
operation  vary.  In  some  cases  the  speculator  borrows 
money  with  the  land  as  security  to  finance  the  building. 
Or  he  may  arrange  with  the  building  contractor  for  the 
construction  of  the  building,  and  thus  undertake  opera- 
tions involving  hundreds  of  thousands  of  dollars  with  only 
a  small  sum  of  his  own.  In  many  cases  speculators  have 
manipulated  deals  so  as  to  get  both  the  value  of  the  lot 

»  Chicago  Real  Estate  News,  (1911)  p.  169. 

*  See  Voigt,  Grundrente  und  Wohnungafrage  in  Berliiit  pp.  218^. . 


876  THE  TAXATION  OF  LAND  VALUE 

and  house,  the  latter  costing  him  practically  nothing.  This 
is  said  to  be  a  common  practice  in  New  York  State 
where  he  can  exploit  the  workmen,  because  in  New  York 
State  the  mechanic's  Uen  does  not  take  precedence  over 
a  mortgage  claim  except  when  such  a  claim  is  recorded 
prior  to  the  recording  of  the  mortgage.^ 

In  fact,  between  the  speculator,  the  loan  association  and 
the  building  contractor,  many  kinds  of  frauds  and  socially 
disadvantageous  operations  are  perpetrated.  For  example, 
some  cheaply  built,  ill-equipped  houses  are  often  erected, 
advertised,  and  sold  to  workingmen  for  the  most  part  at  a 
price  exceeding  enormously  the  actual  value  of  the  property. 
Nor  is  this  all ;  in  most  cases  the  terms  of  sale  are  so  manip- 
ulated that  after  a  failm-e  to  pay  interest  on  the  mortgage, 
the  property  reverts  to  the  sp)eculator,  who  repeats  the 
deal,  exploiting  one  person  after  another. 

Through  cooperation  with  building-loan  associations 
enormous  sums  of  capital  are  put  at  the  command  of  land 
speculators,  which  must  facilitate  their  control  of  the  com- 
munity's housing.  WTiole  towns  have  been  established, 
streets  laid  out  and  houses  built  by  such  operators,  who  reap 
enormous  profits  through  the  growth  of  settlements  and 
of  industry.  A  recent  illustration  is  Gary,  Indiana.^  It  is 
claimed,  of  course,  that  these  land  promoters,  by  develop- 
ing the  subiu-bs  and  erecting  houses,  are  benefactors  to  the 
city  population  in  relieving  the  congestion  of  the  cities. 
This  to  a  certain  degree  must  be  admitted.  Nevertheless, 
when  the  importance  of  the  commodities  they  deal  in,  i.e., 
land  and  houses,  are  considered,  the  expediency  of  putting 
the  welfare  of  the  community  into  the  hands  of  money- 
making  corporations  may  well  be  questioned. 

^  Practical  Real  Estate  Methods,  p.  217.  This  has  been  declared,  by 
the  decision  rendered  in  AUis-Chalmers  Co.  vs.  Central  Trust  Co.  (190 
Fed.  Rep.  700),  to  hold  everywhere. 

*  The  Gary  Land  Company,  the  real  estate  department  of  the  United 
States  Steel  Corporation,  is  described  as  the  largest  real  estate  corpora- 
tion in  the  world.  See  Chicago  Real  Estate  News,  August,  1912,  p.  141. 


THE  TAX  AS  A  SOCIAL  REFORM  877 

One  kind  of  operation,  for  example,  undertaken  by  the 
above-mentioned  cooperative  speculators  and  financed  by 
banking  or  other  loan  associations,  is  the  erection  of  the 
magnificent  apartment  houses  in  suburban  districts.  The 
timehness,  that  is,  the  need  for  these  is  in  question.  Ac- 
cording to  some  realty  authorities  these  operations  in  New 
York  City  (the  upper  part  of  the  city)  have  been  losing 
ventures  because  untimely.  In  Germany  the  erection  of 
these  tenements  or  "  Mietkasernen "  has  given  rise  to  a 
great  deal  of  controversy  as  to  their  social  value.  ^  The 
enormously  rapid  growth  of  speculative  building  operations 
in  communities  scarcely  iu*ban  has  been  pointed  out  by 
Professor  Eberstadt  as  a  social  evil.  Quoting  from  a  work 
entitled,  "  Viel  Hauser  und  Kein  Heim,"  he  illustrates  his 
theory  that  besides  its  untimeliness,  speculative  building 
drives  up  rather  than  reduces  rents.  ^  In  the  city  of  Cassel, 
according  to  him,  a  wealthy  man  bought  up  some  land 
which  would  have  yielded  a  good  profit  at  twenty-five 
marks  per  square  metre,  if  three-story  hoases  with  gardens 
had  been  erected  thereon.  But  the  landowner  had  tall 
tenements  put  up  to  yield  him  a  rental  from  fifty  to  seventy- 
five  marks  per  square  metre.  This  resulted  in  higher  rents 
to  the  tenants;  but  because  of  the  oversupply  of  apart- 
ments, many  of  which  remained  vacant,  the  income  of  the 
landlord  was  no  higher  than  if  the  three-story  houses  had 
been  built.  This  violation  of  the  law  of  supply  and  demand 
is  illustrated  also  by  the  facts  in  om*  cities  where,  in  spite  of 
the  imsatisfied  demand  for  better  dwellings,  many  apart- 
ments stay  vacant  indefinitely.  A  significant  example  of 
this  is  furnished  by  St.  Louis.  A  few  years  ago  it  was  esti- 

*  The  chief  contestants  have  been  Dr.  R.  Eberstadt  who  holds  that 
the  "tenements"  are  socially  injurious  as  well  as  the  cause  of  high  rent, 
and  Dr.  Andreas  Voigt,  who  has  defended  the  erection  of  these  buildings 
in  Kleinhaus  und  Mietkaseme. 

Brentano  asks:  "  Woher  kommt  jene  Teuerung  der  Wohnungen,  die 
sich  gerade  in  den  90*'  Jahren  in  steigendem  Masse  fiihlbar  gemacht  hat? 
Die  Antwort  lautet:  Es  ist  die  Folge  der  Wohlorganizierten  Terrain- 
gpekulation."    Cf.  Soziale  Zeitfragen  (1904),  vol.  xvii,  p.  7. 

*  Eberstadt,  Die  Spekulation  im  neuzeitlichen  Stadiebau,  p.  15.    - 


378  THE  TAXATION  OF  LAND  VALUE 


/ 


mated  that  about  11,000  houses  and  flats  in  St.  Louis,  ex- 
/    elusive  of  stores  and  oflBces,  were  vacant.   Nevertheless, 
rents  were  said  to  have  been  higher  there  than  in  Chicago.* 
The  reason  is  probably,  as  in  the  instance  cited  from  Eber- 
stadt,  that  it  is  to  the  advantage  of  the  owner  who  is  a 
speculator  ^  to  keep  the  houses  vacant  rather  than  to  reduce 
the  rent,  for  by  reducing  the  rent  the  market  or  capitalized 
value  of  his  property  is  depreciated. 
1    l/^   §  13.  A  graver  charge  even  than  those  discussed  above  is 
f     f  that  m  urban  communities  land  is  kept  from  its  best  utili- 
*  ^     '■     zation  by  owners  whose  chief  interest  Ues  in  the  value  in- 
t  crement  which  the  property  will  in  time  realize.  That  the 

withholding  from  market  and  from  improvement  of  land 
;      situated  in  the  heart  of  a  populous  city  causes  unnecessary 
I       enhancement  of  rent  is  logical.   The  question  is  whether 
I       there  actually  are  so  many  such  undeveloped  sites  ripe  for 
I       building  as  to  cause  concern  to  the  community.  Full  data 
I       regarding  this  point  are  lacking.  Upon  an  examination  of 
{       the  assessment  roll  of  the  downtown  section  of  Chicago  — 
I       the  central  business  property  from  the  river  to  Sixteenth 
\      Street  and  the  river  to  Lake  Michigan  '  —  not  counting 
i      the  property  owned  and  occupied  by  the  raihoads,  nearly 
;      one  hundred  vacant  lots  with  from  twenty-five  to  two 
/      hundred  feet  frontage  each  were  enumerated  by  the  writer. 
/       The  number  of  frame  buildings,  moreover,  of  trifling  value 
(       was  considerable,  although  most  of  these  deteriorated 
I       structures  were  on  the  outskirts  rather  than  in  the  center 
I       of  this  section.  But  taking  Chicago  as  a  whole,  the  propor- 
tion of  vacant  lots  would  undoubtedly  be  much  greater 
than  in  the  business  center. 

Valuable  data  in  regard  to  vacant  land  in  New  York  City 
are  reproduced  in  the  following  table:  * 

»  Chicago  Real  Estate  News  (1909),  p.  136. 

*  There  are  few  urban  or  other  landowners  who  are  not  speculators, 
i.e.,  who  do  not  anticipate  an  increase  in  the  value  of  their  property. 

*  See  Assessed  Value  of  Property  in  Chicago,  compiled  by  Chicago  Real 
Estate  Index  Company,  issue  1908-12. 

*  Report  of  Commissioners  of  Taxes  .  .  .  of  New  York  City  (1913),  p.  67. 


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380  THE  TAXATION  OF  LAND  VALUE 

With  reference  to  the  above  table  it  is  evident  that  there 
are  relatively  fewer  vacant  lots  in  Manhattan  than  in 
the  other  boroughs.  In  Manhattan,  where  property  is  so 
enormously  high,  rents  so  excessive,  and  the  tax  rate  on 
improved  and  unimproved  land  alike  so  heavy,  it  is  less 
profitable  to  keep  land  vacant  than  in  Queens,  where  62.5 
per  cent  is  unimproved.^  The  demand  for  dwellings  is  also 
less  in  the  latter  borough;  perhaps  much  of  the  land  is  not 
yet  ripe  for  building  purposes  in  Queens.  Nevertheless, 
the  enormous  value  of  this  vacant  land,  over  142  million 
dollars  in  Queens  alone,  is  significant.  When  it  is  considered 
that  in  all  the  boroughs  about  645  millions  represent  specu- 
lative values,  since  the  vacant  property  does  not  yield  any 
annual  income,  the  problem  as  to  the  regulation  of  private 
ownership  of  land  in  New  York  City  is  seen  to  be  a  serious 
one.^  Moreover,  the  number  of  vacant  parcels  enumerated 
by  the  tax  assessors  does  not  include  land  with  deteriorated 
and  almost  valueless  improvements  upon  it.^ 

During  the  Lloyd  George  Budget  agitation,  the  discus- 
sions with  regard  to  imdeveloped  land  revealed  the  condi- 
tions in  Great  Britain.  For  example,  it  was  said  that  one- 
fifth  of  the  land  within  the  boundaries  of  the  County  of 
London  lay  vacant;  that  in  Edinburgh  2000  acres  of  un- 

^  According  to  the  report  of  the  tax  commissioners,  vacant  parcels  were 
frequently  acreage  plots  in  the  suburbs,  so  that  the  actual  area  vacant  is 
greater  than  indicated  in  the  table.  See  Report  (1913),  p.  64. 

*  The  serious  consequences  of  keeping  land  out  of  use  and  underde- 
veloped is  recognized  by  the  President  of  the  Allied  Real  Estate  Interests, 
Allan  Robinson,  as  appears  from  the  following  exhortation  to  the  '  real 
estate  ground  hog':  "But  the  owner  of  underimproved  property  has  a 
responsibility  to  the  community  in  the  same  way  that  the  owner  of  un- 
improved has.  .  .  .  Inertia  and  hoggishness  on  the  part  of  real  estate 
owners  underlie  the  Single  Tax  menace.  .  •  .  With  the  removal  of  the 
causes  which  have  brought  about  the  Single  Tax  agitation  and  a  changed 
point  of  view  on  the  part  of  real  estate  owners  and  brokers  as  to  the  duties 
of  land  ownership,  the  Socialistic  campaign  aimed  against  real  estate  will 
die  of  its  own  weight."   {Reed  Estate  Magazine,  October,  1913,  p.  63.) 

*  "  Every  parcel  which  contains  any  improvement,  however  slight,  is 
counted  as  improved."  Report  of  Commissioners  of  Taxes  of  New  York 
City  (1913),  p.  64.. 


THE  TAX  AS  A  SOCIAL  REFORM  381 

used  land  excluding  parks  and  gardens  were  kept  unused, 
"  until  a  clear  feu-duty  of  £160  per  acre  per  annum  can  be 
obtained."  ^  It  was  estimated  in  1892  that  in  Manchester 
the  total  area  of  vacant  land  (excluding  gardens,  roads, 
and  other  land  unsuitable  for  building  purposes)  was  4200 
acres.  In  Birmingham,  out  of  13,477  acres,  3500  were  un- 
built upon.  It  was  shown  that  in  Bradford  the  density  in 
some  sections  was  301  persons  to  the  acre,  although  the 
average  density  was  only  21;  and  that  of  10,776  acres  of 
the  land  in  that  city,  4512  acres  available  for  building  were 
still  vacant.  Indeed,  two-fifths  of  the  entire  population  of 
England  and  Wales,  it  is  claimed,  are  crowded  on  about 
one  eight-hundredth  part  of  the  total  area  of  the  country, 
another  two-fifths  occupy  a  little  more  than  one  two- 
hundred-and-fiftieth  part,  and  the  remainder  are  scattered 
over  the  rest  of  the  land. 

There  is,  however,  more  reason  for  the  withholding  of 
land  from  use  in  European  countries  than  in  the  United 
States.  In  England  unimproved  land  is  not  taxable  imder 
the  rating  system,  and  the  land  is  largely  inherited.  In  this 
country,  to  hold  vacant  or  undeveloped  land  involves  the 
payment  of  taxes  and  special  assessments  as  well  as  the 
foregoing  for  a  long  time  of  the  return  on  the  capital  in- 
vested. Real  estate  authorities  confirm  this  opinion. 
"  Where  assessed  valuation  and  taxes  are  both  high,  there 
is  no  money  to  be  made  in  holding  vacant  land  for  an  in- 
definite period.  Every  lot  which  is  worth  say  $3000  and 
which  is  unimproved  has  annual  charges  against  it  of  at 
least  $200,  not  to  speak  of  assessments.  This  charge  is  so 
heavy  that  it  usually  counterbalances  the  increase  in  value. 
Money  made  in  vacant  land  accrues  to  purchasers  who  are 
shrewd  or  lucky  enough  to  buy  at  just  the  right  moment, 

'  Chomley  and  Outhwaite,  Land  Values  Taxation  in  Theory  and  Prac- 
tice, pp.  73  Jf.  In  the  Town  Council  it  was  said  that  Edinburgh  contained 
8000  acres  rated  at  agricultural  value.  Cf.  The  Budget,  the  Land  and  the 
People  (1909),  pp.  68/. 


882  THE  TAXATION  OF  LAND  VALUE 

and  who  capture  a  quick  profit."  ^  Or,  as  another  one  puts 
it:  *  "Unless  a  lot  doubles  in  value  every  five  years,  its 
value  will  not  keep  pace  with  taxes,  special  assessments  and 
interest."  In  cities,  therefore,  as  in  New  York,  where  an 
earnest  attempt  is  made  to  assess  landed  property  at  its 
full  value  and  where  the  tax  rate  is  considerable,  specula- 
tion in  vacant  land  is  probably  less  prevalent  than  in  other 
cities.  Nor  must  it  be  thought  that  such  speculation  is 
always  profitable.'  Concerning  vacant  land  that  bears  an 
urban  value,  so  much  may  be  said  in  conclusion :  either  the 
land  is  not  yet  ripe  for  building,  or  if  ripe  for  building  it  is 
deUberately  withheld  from  utili25ation.  In  both  cases  the 
purpose  is  speculative,  but  it  is  only  in  the  latter  that  the 
practice  is  reprehensible.  And  yet  the  following  considera- 
tion deserves  attention.  In  a  large,  congested  city,  where 
land  values  are  high  but  stable,^  and  taxes  high,  the  ordi- 
nary investor  will  more  likely  find  it  profitable  to  build 
upon  his  land,  if  only  to  cover  its  annual  cost.  This  holds 
true  even  of  the  land  owned  by  the  thirteen  milhonaire 
families  quoted  as  the  landed  monop>olists  of  Manhattan. 
For  of  the  205  or  more  millions  of  land  value  owned  by 
them,  less  than  ten  miUions  comprise  vacant  land.^  To  be 
sure  this  does  not  take  into  account  the  underdeveloped 
land  held  by  them. 

§  14.  Another  evil  which  speculation  in  land  is  known  to 
foster  concerns  the  investor.  Of  course  it  will  be  said  that 
speculation  of  any  kind  is  a  game  in  which  the  investor 

»  Chicago  Real  Estate  News,  April,  1912,  p.  53. 

'  Reed,  Science  of  Real  Estate  and  Mortgage  Investment,  p.  77.  See 
also  Practical  Real  Estate  Methods,  p.  242. 

'  "  They  do  not  hear  of  the  thousands  of  unsuccessful  prospectors  or 
the  many  thousand  proprietors  of  vacant  property  who  wait  for  years 
for  an  improvement  in  values  and  finally  see  their  profits  disappear  in 
interest  charges  and  taxes."  Real  Estate  and  Builders'  Guide,  March  16, 
1912,  p.  540. 

*  Not  constant,  but  in  the  sense  of  steadily  increasing. 

*  From  a  statement  by  the  Society  to  Lower  Rents  and  Reduce  Taxes 
on  Homes. 


THE  TAX  AS  A  SOCIAL  REFORM  383 

consciously  takes  a  risk,  and  must  bear  his  losses.  In  land 
speculation,  however,  it  is  not  a  mistaken  judgment  in  the 
investment  so  much  as  the  system  of  mortgage  which  most 
often  ruins  him.  The  heavy  indebtedness  incurred  by  the 
purchaser  results  often  in  foreclosure,  by  which  the  mort- 
gagee profits  by  more  than  the  value  of  the  mortgage. 
According  to  Professor  Eberstadt,^  six  and  one-half  thou- 
sand million  of  the  seven  and  one-half  thousand  million 
marks,  the  estimated  value  of  the  occupied  land  in  Greater 
Berlin,  were  mortgaged.  The  general  phenomenon  of  in- 
debtedness and  land  speculation  is  described  as  follows  by 
Professor  Adolf  Wagner: ^  "The  factors  which  enter  into 
this  tendency  are  the  fluctuations  in  the  current  rate  of 
interest  and  of  the  rent.  With  the  fall  in  the  rate  of  interest 
and  with  the  increase  in  rent,  the  capitalized  value  of  land 
tends  to  rise.  This  induces  the  people,  even  with  borrowed 
money,  to  invest  in  land.  If  the  market  price  continues  to 
rise  as  expected,  the  reahzation  of  profits  is  sought  by  con- 
tinuing the  sales,  and  this  by  means  of  more  borrowed  capi- 
tal. The  gratifying  terms  of  credit  which  the  banks  offer  at 
such  times  only  draw  more  men  on  to  such  transactions. 
Then  the  market  value  changes,  a  higher  rate  of  interest 
ensues,  and,  in  consequence  of  the  improved  transportation 
facilities,  the  rent  falls,  tending  further  to  decrease  land 
values.  The  value  of  the  land  no  longer  covers  the  capital 
invested,  there  ensues  a  crisis  in  real  estate,  and  mortgages 
falling  due,  the  land  is  sold  at  auction,  and  once  more  the 
moneyed  interests  profit  from  the  transactions."  Occur- 
rences of  enormous  gains  in  this  country  which  have  ac- 
crued to  individuals  as  a  result  of  such  foreclosures  could 
be  readily  cited.  One  example  must  here  suffice.  Mr.  Hurd ' 
tells  of  a  piece  of  land  89  feet  by  99  feet  in  Denver,  Colo., 

^  Op.  cit,  pp.  54, 207.  Land  speculators  are  called  by  him  "  Prekaristen, 
die  von  der  Gnade  unserer  Institutionen  leben." 

*  Grundlegung  der  Politischen  Oekonomie  (1894),  Pt.  II,  p.  389.  (Trans- 
lated freely  from  the  German.) 

*  Principles  of  City  Land  Values,  p.  131. 


884  THE  TAXATION  OF  LAND  VALUE 

which  had  been  bought  on  a  tax  title  many  years  ago  for 
$500.  In  1890  it  was  leased  for  $14,000  annual  net  ground 
rent  for  a  period  of  ninety-nine  years.  That  made  the  land 
value  $280,000  capitalized  at  five  per  cent.  Every  front 
foot  of  ground  was  thus  worth  $3150.  A  nine-story  building 
was  erected  upon  it  in  1890  costing  $325,000.  In  1894  the 
net  rents  were  about  $17,500.  The  leasehold  was  mort- 
gaged for  about  $75,000,  and  when  the  rent  dropped,  the 
building  was  surrendered  to  the  mortgagee  and  then  to 
the  ground-owner,  who  thus  acquired  the  building  and  the 
land,  worth  together  $330,000,  for  an  original  outlay  of  $500. 

Such  losses,  however,  are  attributable  to  miscalculations 
and  short-sightedness  such  as  appear  in  all  speculation. 
Speculation  in  land  cannot  be  condemned  on  account  of 
this  evil  alone.  And  yet,  when,  as  in  Germany,  mortgage 
mdebtedness  has  proved  a  means  of  exploiting  the  farmer 
or  peasant  class,  and  a  means  also  of  concentrating  farm 
land  in  the  hands  of  the  few,  speculation  in  land  which 
facilitates  and  creates  indebtedness  among  the  less  wary 
I  owners  should  be  subject  to  regulation.^ 

§  15.  Conclusions:  Land  speculation  may  prove  socially 
injurious  in  four  ways:  (1)  by  preventing  the  best  utiliza- 
tion of  agricultural,  mineral,  and  forest  land;  (2)  by  keep- 
ing land  ripe  for  building  out  of  use;  (3)  by  controlling 
building  operations;  (4)  by  overcapitalizing  the  land. 

It  is  evident  that  agricultural  land  no  longer  offers  such 
a  fertile  field  for  speculative  operations  as  formerly.  The 
immense  wealth  amassed  by  individuals  as  a  result  of  the 
generous  land  grants  and  speculative  operations  will  not 
be  duplicated  anywhere  soon,  but  should  serve  as  a  lesson 
to  statesmen  in  their  land  policies  of  the  future.  Even  yet, 
however,  when  this  country  has  been  almost  all  appropri- 
ated, agricultural  land  speculation  in  the  United  States 
has  not  ceased.  Thus  the  hope  of  reclaiming  some  of  our 

*  CJ.  Buchenberger,  GrundzUge  der  deutschen  Agrarpolitik  (1897),  pp. 
78/. 


THE  TAX  AS  A  SOCIAL  REFORM  385 

western  prairies  by  means  of  irrigation  has  given  rise  to 
more  speculation,  resulting  in  the  appreciation  of  from 
one  hundred  per  cent  to  one  thousand  per  cent  in  the 
value  of  some  of  our  western  farm  land.  Sites  unsalable  at 
$2  per  acre  ten  or  twelve  years  ago  now  command  $10  to 
$15  per  acre.  ^  In  general,  nevertheless,  it  cannot  be  claimed 
that  speculation  has  led  to  monopolization  in  agricultural 
land.  For  particular  countries  and  localities,  however,  the 
appropriation  and  withholding  of  vacant  land  may  entail 
social  losses.  The  following  illustration  from  Australia 
will  show  how  this  can  happen :  ^  "  In  every  one  of  these 
colonies  millions  of  acres  of  the  richest  agricultural  land, 
with  ample  rainfall  and  near  to  markets  and  ports  of  ship- 
ment are  used  for  mere  grazing  purposes.  As  a  consequence 
most  of  the  farmers  were  forced  to  settle  on  poorer  land, 
farther  from  markets  and  ports,  and  where  the  rainfall  is 
less  abundant.  Land  fit  only  for  grazing  is  thus  used  for 
agriculture,  while  the  land  fittest  for  agriculture  is  used  for 
grazing  only." 

Enough  has  been  said  about  the  practice  of  keeping  land 
vacant  or  partially  utilized  in  the  heart  of  large  cities.  It 
will  be  noted  that  several  factors  determine  the  extent  and 
effect  of  this  kind  of  speculation.  While  high  carrying 
charges  and  taxation  on  capital  value  make  the  withhold- 
ing of  land  unprofitable,  they  do  not  foster  its  best  utiliza- 
tion. Nevertheless,  the  conditions  of  congestion  are  so  vari- 
ous in  this  country,  that  there  are  comparatively  few  cities 
where  the  withholding  of  urban  land  is  as  yet  a  social 
menace.  Only  a  careful  study  of  the  housing  problem  could 
decide  in  each  case  the  harmful  effect  of  uncontrolled  build- 
ing operations. 

Although  on  the  whole  our  American  cities  may  be  said 
to  suffer  from  the  laissez-faire  housing  system  that  pre- 
vails, attention  must  also  be  called  to  a  species  of  controlled 

»  Chicago,  Real  Estate  News  (1910),  p.  106. 
*  Hirsch,  Democracy  versus  Socialism,  p.  131. 


886  THE  TAXATION  OF  LAND  VALUE 

building  to  be  equally  deprecated.  We  refer  to  the  laying- 
out  of  towns  by  "development"  companies.  Gary,  Ind- 
iana, is  an  illustration.  The  Gary  Land  Company  not 
only  graded,  laid  out,  and  subdivided  the  land  and  under- 
took the  house  building,  but  to  this  day  it  withholds  the 
deed  of  sale  from  the  purchasers  of  the  lots  until  they  shall 
have  complied  with  the  agreement  to  build  within  a  cer- 
tain time  and  on  plans  approved  by  the  company.  ^  How- 
ever praiseworthy  the  intentions  of  certain  of  such  under- 
takings, abuses  of  the  power  which  such  operations  involve 
can  easily  be  imagined.^ 

Overcapitalization  of  land,  though  a  common  phenom- 
enon, varies  in  degree  and  extent.  It  is  commonly  known 
that  suburban  land  is  largely  in  the  hands  of  speculators. 
Land  near  cities,  the  normal  value  of  which  for  farming 
is  from  $50  to  $100  per  acre,  and  for  gardening  from  $300 
to  $1000,  may  be  held  at  $500  to  $5000  per  acre  by  specu- 
lators, who  estimate  values  in  accordance  with  the  antici- 
pated earnings  of  the  land  when  it  shall  have  secured  the 
expected  utilization.*  As  to  the  evil  of  inflated  values,  it 
would  seem  that  this  would  aflfect  only  the  less  shrewd  in- 
vestor, who  when  values  declined  to  the  actual  earning 
capacity  of  the  land  might  be  ruined.  From  his  stand- 
point we  might  see  nothing  unusual  in  land  speculation  as 
compared  with  speculation  in  general.   But  just  as  over- 

^  Chicago  Red  Estate  News,  1912,  pp.  141-42. 

'  An  interesting  example  in  point  is  thp  Pullman  City  experiment. 
Mr.  Pullman  had  erected,  not  only  the  dwellings  for  his  workmen,  but  a 
library,  hotel,  church,  etc.  The  latter  remained  vacant  for  some  time, 
because  there  was  no  denomination  large  enough  to  pay  the  required 
rental.  The  arbitrary  control  which  the  Pullman  Company  might  have 
exercised  over  the  residents  can  easily  be  imagined.  Indeed,  the  possibil- 
ity of  misusing  the  powers  which  the  company  had  over  the  living  con- 
ditions of  its  employees  led  to  the  decision  of  the  court  in  1899  requiring 
the  Pullman  Car  Company  to  dispose  of  all  its  real  estate  holdings  not 
used  in  the  industry.  Cf.  Report  of  the  Commissioners  of  the  State  Bureaus 
of  Labor  Statistics  on  the  Industrial,  Social  and  Economic  Conditions  of  Pull- 
man, III.  (1884),  p.  12;  also  Carwardine,  The  Pullman  Strike  (1894),  p.  20. 

*  Cf.  Hurd.  Principles  of  City  Land  Values,  p.  133. 


THE  TAX  AS  A  SOCIAL  REFORM  387 

capitalization  in  other  industries  indirectly  may  enhance 
prices;  so  to  a  greater  degree  as  concerns  dwellings,  the 
choice  of  which  involves  so  many  factors  besides  rental, 
rents  may  very  likely  be  affected.  To  take,  for  example, 
the  value  of  land  in  Chicago;  are  we  to  beUeve  that  the 
landlords  who  bought  their  property  on  the  1889  basis, 
to  which  we  are  told  the  value  of  real  estate  is  only  now  apn 
proaching,  have  been  on  the  whole  recipients  of  less  than 
the  expected  interest  on  their  investment  until  the  present? 
Or,  in  spite  of  the  law  of  competition,^  did  the  landlord  in 
many  cases  not  find  ample  excuse  for  charging  a  higher 
rental  because  he  had  overpaid? 

On  the  whole,  therefore,  as  we  contemplate  the  import- 
ance of  the  commodity  which  is  made  the  object  of  specu- 
lative operations,  when  we  consider  that  the  speculator  is 
guided  by  the  possibilities  of  greatest  gain  to  himself,  a 
motive  not  always  in  accord  with  social  welfare,  when  we 
recall  that  the  problems  of  suitable  housing  and  of  the  con- 
servation of  natural  resources  are  involved,  speculation  in 
land  is  not  an  unmixed  good.^  On  the  other  hand,  consider- 
ing that  the  complete  suppression  of  speculation  involves 
practically  the  abolition  of  private  property,  and  consider- 
ing the  difficulties  in  the  way  of  such  abolition,  even  if 
found  expedient,  this  solution  is  problematical.  Govern- 
ment restriction,  however,  has  been,  and  will  undoubtedly 
continue  to  be  employed  in  checking  the  abuses  of  specu- 
lation in  land  as  they  arise,  and  when  and  where  they  be- 
come a  menace  to  the  public  welfare.  The  efficacy  and 
expediency  of  the  land  tax  in  suppressing  speculation  will 
be  considered  in  connection  with  the  housing  problem. 

*  The  frictional  forces  that  prevent  the  operation  of  this  law  will  be 
discussed  in  the  following  chapter. 

*  The  fact  that  in  some  countries,  e.g.,  England,  Germany,  many  muni- 
cipalities have  been  compelled  to  purchase  land  and  to  undertake  the 
building  of  houses  for  the  working  classes  is  a  sign  of  the  inadequacy  of 
the  present  system  of  realty  operations.  C/.  infra,  chapter  ix,  §  10. 


CHAPTER  IX 

THE   TAX  AS   A   SOCIAL   REFORM    (CONCLUDED) 

§  1.  The  growth  of  cities  in  the  nineteenth  century  has 
given  rise  to  numerous  social  problems,  among  which  there 
is  none  more  vital  than  the  housing  problem.  It  is  unneces- 
sary to  point  out  that  shelter  constitutes  one  of  the  indis- 
pensable conditions  of  existence,  nor  that  land  is  requisite 
for  the  provision  of  dwelling  places.  The  latter  fact  shows 
the  relation  between  housing  and  land  values,  for  any  in- 
fluences that  affect  the  value  of  land  in  any  community 
will  be  reflected  in  the  housing  system  of  that  community. 
Shelter,  it  need  scarcely  be  pointed  out,  means  more  than 
protection  from  the  physical  elements;  it  implies  all  that 
we  to-day  regard  as  essential  for  the  physical,  moral  and 
intellectual  development  of  the  individual.  The  home  is 
the  basis  of  the  "sacred"  family  relationships,  of  physical 
efficiency,  of  sociability,  of  profitable  leisure,  and  of  char- 
acter unfolding. 

Social  workers  especially  are  well  aware  how  the  eco- 
nomic, moral,  and  social  welfare  of  the  greater  part  of  the 
urban  population,  if  not  of  the  entire  population,  is  af- 
fected by  the  housing  facilities.  We  need  only  reflect  that 
from  twenty  to  thirty  per  cent  of  the  income  of  the  major 
portion  of  urban  dwellers  is  expended  for  rent,  and  that  the 
industrial  development  of  a  community,  moreover,  is 
dependent  upon  the  accessibility  to  suitable  locations,  to 
understand  how  the  economic  interests  of  the  population 
are  rooted  in  the  housing  problem.  How  the  social  well- 
being  of  a  community  is  hampered  by  such  evils  as  con- 
gestion and  overcrowding  within  the  home,  insanitary 
buildings,  dark  and  poorly  ventilated  rooms,  the  lack  of 
open  spaces,  has  recently  been  shown  in  numerous  trea- 


THE  TAX  AS  A  SOCIAL  REFORM  889 

tises,  in  the  reports  of  commissions  and  congresses,  and  in 
various  hygienic  and  social  exhibits.^  It  has  been  well 
established  by  statistical  reports  that  health  is  greatly 
undermined  and  the  death-rate  enhanced  by  insanitation 
and  overcrowding.  The  high  death  rate  of  infants  has  been 
attributed  to  these  causes.^  "  It  was  the  opinion  of  physi- 
cians who  appeared  before  the  commission  that  if  the 
occupancy  of  the  dark  rooms  now  legally  occupied  is  per- 
mitted, we  shall  continue  to  have  in  the  city  about 
28,000  new  cases  of  consumption,  and  10,000  deaths  from 
consumption  every  year."  '  When  we  consider  that  sick- 
ness means  unemployment  and  means  greater  expenditure 
for  medical  treatment,  the  seriousness  of  the  housing 
problem  becomes  more  obvious.  Of  no  less  vital  import- 
ance are  the  moral  influences  of  insanitary,  improper  home 
conditions.  It  is  claimed  that  the  lack  of  suitable  surround- 
ings in  and  about  the  home  where  the  child  may  play  is 
responsible  for  much  of  the  delinquency  found  in  large 
cities.  Crime  too  has  been  traced  to  a  lack  of  proper  home 
conditions.  This  was  recognized  by  the  eminent  jurist, 
Liszt,  who  is  credited  with  saying,*  "A  reasonable  reform 
in  housing  is  worth  more  than  a  dozen  penal  laws." 
Another  grave  evil  due  to  overcrowding  is  the  violation  of 
the  recognized  standards  of  decency.  In  short  as  Dam- 
aschke  puts  it,  "Schlafstellenunwesen,  Prostitution,  Al- 
koholmissbrauch,  Zunehmen  des  jugendlichen  Verbrech- 

*  To  mention  a  few:  The  Ninth  International  Housing  Congress  held 
in  Vienna  (1910) ;  the  Tenement  House  Commission  of  New  York  (1900); 
the  New  York  Commission  on  Congestion  (1910);  Housing  Exhibits  in 
Chicago  and  New  York  (1913);  Hygienic  Exhibit  in  Dresden,  etc.  See 
The  Tenement  House  Problem,  ed.  by  R.  W.  DeForest  and  L.  Veiller. 

*  Dr.  Meinert,  a  physician  of  Dresden  is  quoted  as  saying:  "  Wir  suchen 
den  Feind  wo  er  sich  nicht  befindet.  .  .  .  Die  Prage  der  hohen  Sauglings- 
sterblichkeit  ist  im  wesentlichen  eine  Wohnungsfrage."  quoted  from 
Mangoldt,  Die  Stddtische  Bodenfrage,  p.  892.  See  Eighth  Special  Report 
of  the  United  States  Commissioner  of  Labor  (1895),  p.  79,  where  the  high 
death-rate  in  cities  is  attributed  to  housing  conditions. 

*  Findings  of  the  New  Y'^ork  City  Commission  on  Congestion  (1910). 

*  Damaschke,  Bodenreform  (1912),  p.  7G. 


390  THE  TAXATION  OF  LAND  VALUE 

ertums  —  das  alles  ist  in  seinem  engen  Zusammenhang 
mit  Wohnungsnot  und  Wohntmgselend  heute  in  alien 
ernsten  Kreisen  bekannt!"  ^ 

§  2.  If  these  be  some  of  the  serious  effects  of  bad 
housing  upon  health  and  social  efficiency,  we  must  ask 
where  and  why  this  evil  has  arisen.  The  "slum"  consti- 
tutes to-day  a  definite  section  of  most  of  the  populous 
cities,  but  displays  its  worst  features  in  London,  Dublin, 
and  in  about  half  a  dozen  cities  in  the  United  States.  The 
housing  problem  is,  however,  by  no  means  limited  to  these 
cities.  We  may  affirm  that  not  only  urban  but  also  rural 
communities  suffer  from  insanitary  dwellings.  In  Berlin 
and  the  other  German  cities,  for  example,  you  look  in  vain 
for  districts  resembling  Whitechapel,  or  the  East  Side 
(New  York),  yet  investigations  in  German  cities,  some 
scarcely  urban,  have  revealed  startling  conditions  of  over- 
crowding. A  large  percentage  of  families  occupied  but  one 
or  two  rooms,  while  many  homes  were  found  in  which 
more  than  six  persons  were  living  in  a  single  room.^  Ac- 
cording to  reports  and  statistics  conditions  are  not  better 
in  English  cities.  To  give  a  few  examples:  In  Glasgow 
100,000  persons,  or  one-fifth  of  the  whole  population,  are 
reported  as  living  in  one-room  dwellings.  In  Liverpool 
thousands  of  basements  and  alley  houses  in  dilapi- 
dated and  intolerable  condition,  without  air  and  sun,  are 
utilized  as  homes.'  As  regards  overcrowding,  conditions 
are  nowhere  comparable  to  those  in  Berlin  and  New 
York.  In  both  cities  the  "  skyscraper "  predominates. 
But  while  it  is  claimed  that  three-fourths  of  the  popula- 
tion of  New  York  live  in  tenements,  we  find  that  of  all 
the  houses  in  Berlin  93.79  per  cent  are  occupied  by  ten- 
ants, 2.57  per  cent  by  proprietors,  and  3.64  per  cent  by 

*  Mangoldt,  op.  cit.,  pp.  396-97, 

*  Damaschke,  op.  cit.,  p.  69.   Cf.  also  Eberstadt,  Handbuch  des  Woh- 
nungswesens,  passim. 

*  Fuchs,  Zur  Wohnungsfrage,  pp.  118-19. 


THE  TAX  AS  A  SOCIAL  REFORM  891 

servants.  The  extent  of  congestion  in  Berlin  is  further- 
more proved  by  the  following  fact:  In  London  there  were 
found  to  be  7.93  persons  to  a  building  site,  in  Berlin, 
76.9  persons.^ 

§  3  The  causes  of  these  intolerable  conditions  are  chiefly 
economic  and  social.  Few  cities  have  originally  been  laid 
out  deliberately.  For  the  most  part  their  growth  has 
been  haphazard.  Building  permits  and  sanitation  laws 
were  later  developments.^  Contractors  and  owners  had 
houses  constructed  without  regard  to  artistic  design,  or 
uniform  height,  but  after  their  own  sweet  will  and  with  the 
sole  purpose  of  personal  gain.  It  is  this  laissez-faire  policy 
which  is  responsible  in  part  for  the  "slum"  conditions. 

A  more  fundamental  cause  is  the  economic  factor  as  it 
touches  the  tenant.  If  we  study  the  population  of  the 
"slum,"  we  find  that  the  south  European  immigrant  pre- 
dominates.' We  know  that  his  standard  of  living  is  much 
lower  than  that  of  the  country  to  which  he  emigrates,  such 
as  the  United  States  or  England,  and  that  his  intention  in 
leaving  his  native  country  is  to  earn  and  save  as  much 
money  as  possible,  often  with  a  view  to  returning  to  his 
native  country.  Hence  we  should  expect  him  to  settle 
where  rent  is  the  lowest.  And  so  he  does.  If,  now  we  in- 
quire where  rent  is  lowest,  we  find  that  it  is  generally  in  the 
oldest  part  of  the  city,  which  on  account  of  social  changes 
and  of  the  industrial  development  has  been  abandoned  by 

*  Pohle,  Die  Wohnungsfrage,  vol.  i,  pp.  37,  43.  The  prevalence  of 
tenements  is  not  always  a  sign  of  insanitation,  but  the  congestion  and 
construction  of  the  cheaper  dwellings  tend  to  make  them  insanitary  as  well 
as  to  destroy  the  privacy  of  home  life,  and  to  hinder  home-ownership. 

*  For  New  York  the  sanitation  law  of  1882  related  to  tenements  and 
lodging  houses.  A  similar  law  was  passed  for  London  in  1891.  Cf.  Eighth 
Special  Report  of  the  Commissioner  of  Labor  (1895),  chapter  ii. 

'  In  St.  Louis,  for  example,  the  poorest  district  was  inhabited  by  Jews, 
who  constituted  28.4  per  cent;  by  Italians,  who  constituted  27.5  per 
cent;  and  by  negroes  who  formed  15.7  per  cent  of  the  whole  number  of 
residents.  The  Poles  were  13.1  per  cent  and  other  various  nationalities 
15.3  per  cent.  Report  of  the  Housing  Committee  of  the  Civic  League  of 
St.  Louis  (1908),  p.  84. 


802  THE  TAXATION  OF  LAND  VALUE 

/the  native  population  for  uptown  residential  sections. 
.■Here,  where  encroachments  of  all  kinds  are  tolerated  and 
;  where  houses  have  become  unfit  for  habitation,  the  immi- 
grant makes  his  abode.  If  these  insanitary  structures  are 
condemned  by  the  building  inspector,  they  are  superseded 
by  tenements.  The  large  capital  invested  in  these  new 
structures  and  the  great  demand  for  houses  in  the  "slum" 
district,  cause  rents  to  rise  above  the  level  in  the  suburbs  or 
on  the  periphery  of  the  town.  Then  the  immigrant  is  com- 
pelled to  take  in  more  lodgers,  to  resort  to  the  most  in- 
sanitary, ill-equipped  houses  (unless  the  law  condemns 
them  all),  and  to  make  dwelling-places  out  of  basements, 
garrets,  and  dilapidated  rear  houses.  Viewed  from  another 
standpoint  the  low  wages  of  the  immigrant  may  be  said  to 
be  responsible  for  the  congested  and  otherwise  insanitary 
conditions.  It  will  be  remembered  that  it  is  in  the  "  slums  " 
where  the  sweat  shops  are  to  be  found.  In  those  sweated 
industries  the  insufficient  wage  forces  a  lower  standard  of 
existence  upon  the  worker. 

Added  to  the  economic  is  the  social  factor.  The  concen- 
tration of  population  is  generally  within  the  industrial 
center,  where  the  workmen  may  be  near  their  places  of 
employment.  This  section  corresponds  to  the  oldest  and 
most  undesirable  part  for  residential  purposes.  Now, 
when  once  settled,  clannishness,  that  great  social  force, 
tends  to  keep  the  persons  of  one  nationality  and  family 
together.  The  strength  of  this  factor  of  sociability  and 
family  ties  in  engendering  the  "slum"  district  is  seen  in 
the  unwillingness  of  tenement  dwellers  to  move  to  cheaper 
and  at  the  same  time  more  desirable  quarters  in  the  city. 
That  racial  and  social  forces  are  responsible  in  part  for 
the  "slums"  is  further  made  evident  by  the  fact  that 
only  where  immigration  has  gathered  a  large  number  of 
foreigners  does  a  Whitechapel  or  an  East  Side  make  its 
appearance. 

§  4.  In  view  of  these  conditions  it  may  well  be  asked,  is 


THE,  TAX  AS  A  SOCIAL  REFORM  893 

it  the  high  rent  which  creates  a  lower  standard  of  living 
among  the  immigrants,  or  is  it  the  immigrant  and  his 
clannishness  that  raise  rent  ?  The  relation  between  them  is 
reciprocal.  As  Hurd  says,  the  cause  of  rent  for  residences 
is  social  as  well  as  economic.^  It  will  be  agreed  that  not 
only  in  tlie  slums  but  in  the  city  as  a  whole  rent  and  land 
value  tend  to  increase  with  the  growth  of  population,  that 
is  with  the  increase  in  the  demand  for  houses.  On  the 
other  hand,  for  the  reasons  already  given,  the  congestion 
per  acre,  the  overcrowding  per  room,  and  resultant  evils 
are  not  likely  to  be  relieved  much  by  the  development  of 
transportation  facilities  or  by  other  methods  of  extending 
the  available  residential  area.  The  seriousness  of  these 
conditions  in  our  largest  cities  can  scarcely  be  exaggerated. 
How,  then,  shall  the  urban  housing  problem  be  solved? 

Obviously,  a  reduction  in  rent  will  not  only  afford  relief 
to  the  poorer  classes  materially,  socially,  and  even  ethi- 
cally, but,  together  with  legislation  regulating  building 
operations  and  stricter  laws  of  sanitation,  may  help  to 
eliminate  the  slums.  Before  discussing  the  possibility  of 
lower  rents,  it  is  necessary  to  point  out  the  inefficacy  of 
building  regulations  when  unaccompanied  by  rent  reduc- 
tions. 

That  building  and  sanit^ion  laws  are  the  jfirst  steps  to- 
ward the  solution  of  th^ousing  problem  cannot  be  ques- 
tioned. No  governmrat,  in  modern  opinion,  should  permit 
the  individual,  even  if  he  so  desires,  to  occupy  a  dwelling 
that  falls  below  the  recognized  standard  of  sanitation,  com- 
fort and  decency.  Adequate  regulations  limiting  the  height 
and  area  to  be  covered  by  the  building,  requiring  the  in- 
stallation of  sanitary  appliances,  fixing  the  minimum 
width  of  staircases,  the  height  of  ceilings,  the  size  of  rooms 
and  windows,  and  so  forth,  should  not  only  be  enacted,  but 
should  be  strictly  enforced  by  the  building  inspectors. 
Indeed,  it  might  be  expedient  for  all  cities  to  follow  the 
*  Principles  of  City  Land  Values,  pp.  77-78. 


8M  THE  TAXATION  OF  LAND  VALUE 

lead  of  German  communities  in  promoting  the  "city 
beautiful"  as  well  as  the  city  hygienic.  "German  cities 
have  taught  us  a  valuable  lesson  in  the  matter  of  laying  out 
suburbs.  Improvement  plans  are  furnished  by  the  munici- 
pality, and  architects  are  invited  to  compete  in  presenting 
designs.  After  it  has  been  decided  that  a  certain  district 
shall  be  opened  up,  a  jury  is  appointed  to  assess  damages, 
terms  are  made  with  private  owners,  and  the  architect 
furnishing  the  most  acceptable  scheme  is  awarded  the 
prize."  ^ 

What,  however,  must  be  the  effect  of  such  legislation? 
Evidently  the  enhancement  of  rent  because  of  the  increase 
in  the  cost  of  construction.  Such  has  been  the  result  in 
German  cities.^  Indeed,  the  increased  overcrowding  there 
is  attributable  to  the  high  rents  which  expensive  buildings 
and  improvements  tend  to  create.  To  keep  rents  down  re- 
course will  be  had  by  those  of  a  lower  standard  of  living 
especially  to  increase  the  number  of  lodgers.  In  short,  "the 
poorer  classes  want  cheap  houses,  must  have  them;  they 
imderstand  what  a  saving  of  a  sixpence  a  week  in  the  rent 
means,  but  they  do  not  understand  yet  the  advantages  of 
concrete  foundations,  properly  jointed  drain  pipes  or 
wash  down  water-closets.  They  do  not  mind  taking  a  few 
lodgers  into  an  already  well-filled  house,  because  they 
understand  the  advantages  of  a  few  shillings  a  week,  but 
they  do  not  understand  that  each  inhabitant  of  a  sleeping- 
room  should  have  at  least  500  cubic  feet  of  air  space."  ' 
Thus  the  method  of  solving  the  housing  problem  by 
restrictive  building  regulations  may  be  rejected  as  futile. 

In  considering  the  possibility  of  reducing  rents  to  relieve 
congestion,  we  may  begin  by  analyzing  the  factors  that 
enter  into  the  determination  of  rent.  And  it  will  be  con- 

^  Eighth  Special  Report  of  the  U.S.  Commissioner  of  Labor  (1895),  p. 
93. 

*  Pohle,  "  Die  Wohnungsfrage  "  in  Handbuch  der  Politik,  vol.  n,  pp. 
522,  524. 

5  Thompson,  The  Housing  Handbook,  p.  173. 


THE  TAX  AS  A  SOCIAL  REFORM  895 

venient  to  classify  these  factors  under  ground  rent  and 
building  rent.  Ground  rents  are  affected  by  the  popula- 
tion, by  transportation  facilities,  by  the  industrial  devel- 
opment, including  the  kinds  of  industries  carried  on,  by 
the  system  of  land  tenure  and  speculation,  by  racial  ties 
and  other  social  considerations.  Some  of  these  tend  towards 
a  reduction,  others  towards  an  advance  in  rentals.  Friction 
from  offsetting  and  opposing  influences  may  therefore  be 
expected.  Thus,  the  tendency  of  improved  facilities  of 
transit  to  draw  the  population  to  the  periphery  of  the 
town  would  be  offset  by  the  clannishness  which  has  drawn 
the  foreigners  to  a  particular  neighborhood,  generally  in  the 
center  of  the  town.  The  elements  entering  into  building 
rents  are  chiefly  the  various  expenses  of  operation,  deter- 
mined by  the  conditions  of  the  labor  market,  especially  in 
the  building  trades,  the  available  capital  for  building,  the 
cost  of  materials,  taxes,  condition  of  the  mortgage  loan 
market,  etc.  Under  frictional  influences  may  be  classed 
the  immobihty  of  invested  capital,  the  leasehold  and  con- 
tract system,  and  above  all  the  strong  force  of  custom. 
Relief  of  congestion  through  a  reduction  of  rents  may  be 
of  two  kinds,  reduced  congestion  per  unit  of  ground  space, 
e.g.,  per  acre,  and  per  room. 

Viewing  the  housing  problem  thus  from  the  economic 
standpoint,  its  relation  to  the  tax  on  land  value  becomes 
clear.  For  the  tax  may  be  expected  to  affect  a  number  of 
the  elements  enumerated  which  make  up  rent.  We  have 
now  to  examine  the  possible  results  on  housing  of  the  land 
tax,  as  they  have  been  deduced  theoretically  by  the  adher- 
ents of  the  tax  on  the  one  hand,  and  the  adversaries  on  the 
other. 

§  5.  First,  on  the  part  of  the  advocates  it  is  claimed  that 
the  land  tax  would  affect  congestion  in  the  following 
manner:  First,  as  the  tax  would  make  it  expensive  to  keep 
property  unoccupied,  vacant  land  would  be  forced  into  the 
market.  As  a  consequence,  secondly,  the  market  price  of 


S9G  THE  TAXATION  OF  LAND  VALUE 

land  would  tend  to  be  reduced  and  land  values  would  be- 
come more  stable.  This  result  would  also  follow,  thirdly, 
when  the  lure  of  the  value  increment  is  in  part  removed; 
that  is,  speculation  would  be  curtailed,  and  overcapitaliza- 
tion discouraged.  Fourthly,  the  incentive  to  improvement 
would  be  created  both  by  the  high  carrying  charges  on 
unimproved  land,  and  by  the  untaxing  of  buildings.  The 
latter  would  attract  more  capital  into  the  building  trades 
and  would  result  in  a  larger  number  of  available  houses. 
Fifthly,  the  remission  of  the  tax  on  buildings  would  benefit, 
not  the  builder  (except  indirectly),  but  the  tenant,  upon 
whom  the  tax  ultimately  falls. 

In  the  platform  of  the  United  Committee  for  the  Tax 
on  Land  Values  in  England  it  is  stated,^  "If  urban  and 
suburban  land  were  taxed  on  its  true  unimproved  value, 
irrespective  of  the  use  to  which  it  happens  to  be  put  or  not 
to  be  put;  the  iron  girdle  of  land  monopoly  which  now 
confines  every  large  town  and  industrial  center,  every  vil- 
lage, and  every  hamlet,  would  be  broken  through,  and  we 
should  have  more  and  cheaper  dwelling  houses,  shops, 
oflSces,  warehouses,  and  factories." 

The  reasoning  by  which  the  above  deduction  was 
derived  needs  no  further  elucidation.  It  is  noteworthy, 
however,  that  the  argument  rests  merely  on  the  expediency 
of  the  tax  on  capital  value  versus  that  on  rental  value. 
Disregarding  the  assumption  of  monopoly  in  urban  land, 
many  will  agree  that  the  English  rating  system  on  annual 
value  tends  to  encourage  the  withholding  of  land  from  use.^ 
The  passage  quoted  above,  though  it  contains  a  grain  of 
truth,  is  far  too  sweeping.  Obviously,  the  degree  to  which 
the  tax  will  be  effective,  even  if  the  salutary  influence  be 

*  Third  Annual  Report,  p.  64. 

*  "  Lawson  Purdy,  the  chairman  of  the  Department  of  Taxes  and  As- 
sessments for  New  York,  expressed  the  opinion  that  were  rates  levied  on 
actual  capital  value  in  London  as  in  New  York,  nearly  all  Regent  Street 
would  be  pulled  down  and  a  large  part  of  the  Strand."  Chomley  and 
Outhwaite,  op.  cit.,  p.  78. 


THE  TAX  AS  A  SOCIAL  REFORM  807 

admitted,  will  depend  upon  the  rate  of  tax,  the  prospects 
of  its  being  increased,  the  amount  of  available  vacant  and 
undeveloped  land,  the  counteracting  forces,  e.g.,  the  in- 
crease in  population,  local  improvements,  and  all  other 
conditions  that  enter  into  building  rents. 

With  regard  to  the  stimulation  of  building  operations  the 
following  passages  are  illustrative  of  the  trend  of  thought: 
*'Yet  another  argument  which  may  be  adduced  in  favor  of 
the  rating  of  site  values,  is  that  in  consequence  of  urban 
land  coming  more  freely  into  the  market  and  building 
enterprises  being  stimulated,  rent  would  be  materially  re- 
lieved; and  this  relief  would  come  where  rent  is  now  at  its 
maximum,  i.e.,  in  our  large  industrial  centers.  .  .  .  Every 
opportunity  given  to  the  freer  growth  of  the  city  in 
the  suburbs  will  tend  to  reduce  this  congestion  at  the 
center."  ^ 

This  quotation  refers  to  the  first  method  of  creating  an 
impetus  to  building,  namely,  by  making  the  holding  of 
vacant  land  "for  a  rise"  unprofitable.  In  the  following 
passage  emphasis  is  laid  on  the  effect  of  the  untaxing  of 
buildings: '  "Again,  we  should  be  freeing  buildings  from 
the  burden  of  rates.  By  levying  rates  on  buildings,  we 
make  buildings  dearer,  and  the  inevitable  consequence  is 
that  fewer  are  built.  Under  our  present  system  of  rating, 
builders  cannot  afford  to  build,  because  occupiers  cannot 
afford  to  occupy  so  many  or  such  good  houses  as  they 
could  if  buildings  were  not  liable  to  be  rated.  If  we  cease 
to  levy  rates  on  the  value  of  buildings,  we  shall  remove  the 
first  of  the  two  main  causes  of  the  dearness  and  scarcity 
of  houses." 

Here,  too,  whatever  truth  the  above  claims  may  contain, 
they  are  vitiated  by  too  general  assumptions.  For  instance, 
they  take  it  for  granted  that  the  demand  for  houses  is 

*  Alden  and  Hayward,  Housing,  p.  94. 

*  Quoted  by  Thompson  {op.  dt.,  p.  264)  from  a  leaflet  issued  by  the 
Liberal  Publication  Department. 


898  THE  TAXATION  OF  LAND  VALUE 

elastic,  that  there  are  no  limits  to  the  available  capital  for 
building  purposes,  that  mortgage  loans  will  remain  un- 
affected, that  the  effect  of  the  overbuilding  stimulus  will 
not  increase  the  cost  of  labor  and  materials,  etc.  To  be 
sure,  when  these  frictional  forces  are  pointed  out  to  the 
proponents  of  the  tax  they  defend  their  position  by  more 
general  statements.  For  example,  they  maintain  that 
where  rent  consumes  more  than  one-fifth  of  a  family's 
income,  crowding  is  the  inevitable  result.  The  reduction  in 
rental,  through  the  greater  number  of  available  dwellings 
would  increase  the  demand  for  newer,  larger  accommo- 
dations, and  would  enable  some  of  the  large  "lodging" 
population  to  establish  homes  of  their  own.  As  to  the 
question  of  available  capital,  they  point  to  the  present 
excessive  tax  on  buildings  in  comparison  with  that  on  other 
forms  of  capital.  They  urge  further  that  under  the  present 
system  of  taxation,  the  cost  of  building  is  prohibitive 
except  to  meet  the  urgent  demand  for  housing.  That  the 
effect  on  mortgage  loans  should  be  wholesome  is  deduced 
from  the  doctrine  of  capitalization.  The  value  of  the  land 
under  the  tax  would  not  fall  below  the  capitalized  net 
rental,  either  accruing  or  prospective.  Land  and  buildings 
would,  therefore,  be  safer  securities  than  to-day,  when  the 
tendency  is  to  overcapitalize  the  value  of  the  land.  With 
these  important  doctrines  of  the  defenders  before  us,  we 
shall  next  epitomize  the  arguments  of  the  opponents  of  the 
tax  system. 

§  6.  The  chief  criticism  of  the  theories  concerning  the 
consequences  of  the  tax  on  land  value,  namely,  that  the 
numerous  and  offsetting  elements  that  compose  rents  are 
lost  sight  of,  as  well  as  the  frictional  forces  at  work  in  social 
phenomena,  gives  the  clue  to  the  contentions  of  the 
opposition.  First,  consider  the  questions  of  vacant  land 
and  speculation.  The  prevalence  of  vacant  land  ripe  for 
building  is  denied  by  some,  while  others  even  hold  that 
building  operations  depend  upon  this  speculative  feature 


THE  TAX  AS  A  SOCIAL  REFORM  S99  / 

in  realty  holdings.^  So  long  as  there  is  a  large  number  of 
vacant  houses,  it  cannot  be  said  that  land  is  held  vacant 
for  speculative  purposes;  especially  does  this  apply  where 
the  tax  rates  are  high.  The  land  must  sometimes  be  kept  in 
an  unimproved  or  underimproved  condition  because  of  the 
possibility  of  change  in  the  character  of  the  neighborhood, 
and  for  other  sound  reasons.  The  validity  of  this  position, 
however,  cannot  be  decided  theoretically.  And  yet,  in 
studying  the  facts,  the  diflBculty  arises  of  fixing  the  stand- 
ards of  underdeveloped  and  appropriately  improved  land. 
These  terms  will  probably  have  different  meanings  in 
different  localities  and  countries,  and  the  prevalence  of 
such  underdevelopment  will  probably  vary  from  place 
to  place.  ^ 

Secondly,  granting  that  the  imposition  of  the  tax  will  ^^ 
cause  a  decline  in  land  value,  and  that  it  will  induce  the       / 
owner  to  build  upon  his  land,  might  not  this  incentive  and     / 
the  untaxing  of  buildings  lead  to  a  more  intensive  use  of  / 
the  land?   The  dangers  of  an  overutilization  of  the  land ' 
from  the  standpoint  of  the  housing  problem  are  generally 
admitted.   Not  the  congestion  per  room,  but  the  greater 
congestion  per  acre  is  threatened  thereby.  If  the  improve- 
ment of  the  suburban  districts  only  were  stimulated  by  the 
tax,  a  general  reduction  of  congestion  in  the  city  would  be 
conceivable.  But  it  is  reasonable  to  expect  that  the  more 
expensive  the  land,  i.e.,  in  the  heart  of  the  city,  the  greater 
would  be  the  incentive  to  improve  it.  It  is  feared,  therefore, 
that  an  overdevelopment  might  ensue,  that  the  skyscraper 
would  become  more  prevalent  than  the  need  of  the  com- 
munity would  warrant.  The  possibility  of  compact  build- 
ing, moreover,  carries  with  it  the  utilization  of  the  now 
available  open  spaces  and  even  of  garden  space.  The  ad- 
herents of  the  new  system  admit  the  gravity  of  the  charge 
with  respect  to  lofty  and  compact  building;  they  are  less 
ready  to  admit  the  deleterious  effect  on  garden  space.  To 
*  Cf.  supra,  chapter  ru,  §  5. 


400  THE  TAXATION  OF  LAND  VALUE 

the  first  charge  answer  is  usually  made,  that  the  intensive 
utilization  of  the  land  is  a  tendency  which  will  continue 
irrespective  of  the  tax.  Indeed,  the  trend  toward  compact 
building  may  have  been  caused  and  furthered  by  the  with- 
holding of  land  from  use.  To  overcome  the  dangers  to 
good  housing,  the  government  will  be  compelled  sooner  or 
later  to  restrict  and  control  building  operations  according 
to  a  well-laid-out  town-planning  scheme.  It  would  seem, 
therefore,  that  legislation,  at  least  restricting  the  height  of 
bmldings,  would  have  to  precede  the  introduction  of  the  tax. 

On  the  other  hand,  by  opening  up  the  suburbs,  and  by 
relieving  the  tenant  in  the  center  of  the  city,  the  necessity 
for  tall  buildings  would  be  removed  and  the  tendency 
toward  more  intensive  utilization  would  be  checked. 
Logically,  it  might  even  be  reasoned  that  with  the  greater 
competition  for  tenants,  the  desires  of  the  dwellers  would 
be  consulted  in  building  more  than  at  present.  Further- 
more, every  one  is  aware  that  houses  with  gardens  and 
open  spaces  are  more  desirable  and  valuable;  and  if  the 
owner  is  looking  forward  to  an  increase  in  the  value  of  his 
property  in  the  future,  he  will  prefer  to  keep  it  in  a  more 
desirable  condition,  fronting  on  a  lawn  or  open  space.  It 
should  be  remembered,  moreover,  that  the  decline  in  the 
value  of  the  land  is  expected  to  enable  and  encourage  more 
persons  to  own  their  homes,  especially  in  the  suburbs.  It  is 
likewise  expected  that  the  reduced  value  of  land  will 
counteract  the  movement  towards  the  more  intensive  use 
of  the  site. 

Thirdly,  the  eflficacy  of  the  tax  to  promote  building  op- 
erations has  also  been  questioned  on  various  grounds.  We 
are  famiUar  with  the  theory  that  the  curtailment  of  specu- 
lation, i.e.,  the  reduction  in  prospective  value  increment, 
will  tend  to  discourage  building.^  Another  reason  given  to 

*  The  untaxing  of  buildings  would  not  necessarily  relieve  the  owners 
who  occupy  their  homes.  The  effect  would  depend  upon  the  relative 
values  of  the  building  and  site. 


THE  TAX  AS  A  SOCIAL  REFORM  401 

deny  that  a  building  "boom"  will  ensue  is  that  the  de- 
mand for  houses  is  inelastic,  that  overbuilding  could  not 
go  on  indefinitely.  While,  therefore,  a  decrease  in  rent 
might  have  the  effect  of  temporarily  stimulating  the 
erection  of  new  buildings,  and  of  providing  larger  and 
better  accommodations,  the  tendency  would  check  itself. 
For,  granted  that  modem  types  of  buildings  will  tend  to 
supersede  the  older  and  inappropriate  structures,  and  that 
the  latter  will  be  torn  down,  the  increased  cost  of  con- 
structing the  new  buildings  will  check  the  overbuilding 
trend.  Moreover,  the  incentive  for  capital  to  be  em- 
ployed in  building,  which  will  at  first  ensue,  will  be 
checked  when  the  rate  of  profit  in  that  industry  be- 
comes the  current  rate  in  other  industries.  But,  say  the 
adherents,  even  these  assumptions  insure  a  decided  im- 
provement in  housing  conditions. 

Fourthly,  with  respect  to  the  doctrine  that  the  remission 
of  the  tax  on  buildings  would  redound  to  the  benefit  of  the 
tenant  in  the  shape  of  reduced  rents,  no  account  is  taken 
of  the  friction  that  may  be  expected  to  develop  in  the 
readjustment.  Aside  from  the  reputed  immobihty  of  the 
population,  aside  from  custom  which  largely  determines 
the  possible  expenditure  for  rent,  aside  from  existing  lease- 
holds, the  tax  on  land  value  may  itself  set  in  motion  various 
forces  to  enhance  rents.  Most  important  is  the  assertion 
that  owners  of  improved  property  count  upon  the  prospec- 
tive increments  in  land  value  to  counterbalance  the  de- 
terioration of  the  building.  Thus  rents  are  assumed  to  be 
lower  than  if  the  owner  had  to  provide  a  depreciation 
fund.  With  the  heavier  tax  on  land  value,  such  a  reserve 
fund  would  be  necessitated,  adding  to  the  building  cost. 
This  would  result  in  higher  rents.  Again,  by  the  decline  in 
land  value,  property  would  no  longer  be  worth  as  much  as 
security  for  mortgage  loans.  Moreover,  since  the  mort- 
gagee takes  the  prospective  increment  into  account  in  mak- 
ing the  loan,  the  effect  of  the  tax  would  be  either  to  reduce 


,iOi  THE  TAXATION  OF  LAND  VALUE 

the  amount  of  available  capital  for  building,  or  to  raise  the 
interest  rate,^  in  which  cases  rents  would  tend  upward. 
These  arguments  assume,  however,  that  building  opera- 
tions are  a  distinctive  industry  dependent  upon  land- 
ownership  and  land  speculation.  We  have  already  pointed 
out  how  the  widespread  leasehold  system  in  itself  seems  to 
contradict  this  theory.* 

Lastly,  in  a  dynamic  society,  further  friction  might  be 
expected  to  arise  to  counteract  the  movement  toward 
reduced  rents.  Assume  the  reduction  of  rent  in  one  com- 
munity, and  would  there  not  be  an  influx  of  outsiders  to 
take  advantage  of  the  reduction.?  Moreover,  the  normal 
increase  in  population  in  a  progressive  community  and  the 
rise  in  the  cost  of  materials  and  labor,  if  the  stimulation  in 
building  becomes  general,  would  tend  to  check  the  allevi- 
ating influences  of  the  tax. 

§  7.  Turning  from  the  theoretical  discussion  of  the 
effect  of  the  tax  on  housing,  we  ask  what  are  the  facts? 
Our  study  has  demonstrated  the  futility  of  attempting  to 
determine  precisely  the  influences  of  the  tax  in  the  presence 
of  so  many  interacting  social  forces.  Whether  attributable 
to  the  fact  that  the  growth  of  the  community  has  offset  the 
forces  set  in  motion  by  the  tax,  or  that  the  tax  rate  has  been 
too  slight' to  affect  market  values,  or  that  the  actual  results 
of  the  tax  on  land  and  of  the  remission  of  the  tax  on  im- 
provements have  not  conformed  with  theory,  the  reports  of 
the  officials  and  the  statistics  for  certain  communities 
where  the  tax  is  in  operation  show  that  rent  cannot  have 
been  materially  affected  by  the  tax. 

On  the  other  hand,  the  available  data  do  reveal  an  ac- 
tivity in  building  operations  in  the  Australian  and  Cana- 

^  A  rather  ingenious  theory  with  respect  to  the  effect  on  mortgage  loans 
was  propounded  at  the  public  hearings  of  the  New  York  Committee  on 
Taxation.  The  lower  land  value  would  mean  less  capital  loaned  on  mort- 
gages, with  the  result  of  a  larger  amount  of  available  capital  for  building 
operations  at  a  lower  rate  of  interest.'; 

*  Supra,  chapter  vii,  §  5. 


THE  TAX  AS  A  SOCIAL  REFORM  403 

dian  municipalities  which  is  generally  attributed  in  part 
to  the  exemption  of  improvements.  There  was  no  evidence 
of  overbuilding  in  Australasia;  in  Canada,  on  the  other 
hand,  the  excess  in  vacant  buildings  in  some  of  the  towns 
in  recent  years  has  been  charged  to  the  operation  of  the 
tax.  Whether  this  condition  of  overbuilding  existed  during 
the  land  "boom"  period,  when  newcomers  in  some  cities 
had  to  resort  to  tents  for  shelter,^  has  not  been  established. 
Nor  is  it  possible  to  determine  the  effectiveness  of  the  tax 
on  value  increment  to  influence  notably  the  land  market 
and  building  operations  from  the  stagnant  conditions  in 
both  fields  after  the  imposition  of  the  taxes  in  England  and 
Germany.  In  the  latter  country,  the  unfavorable  market 
conditions,  traceable,  however,  to  the  general  depression  for 
which  the  tax  legislation  was  not  responsible,  played  a  con- 
siderable r61e  in  the  amendment  of  the  law.  The  English  du- 
ties on  land  value  were  likewise  ineffective  in  preventing  the 
temporary  slump  in  the  building  trades  of  London  in  1911, 
and  failed  to  relieve  the  serious  housing  conditions  there.' 
But,  in  judging  the  tax,  aside  from  the  unfavorable  effect 
of  the  general  industrial  depression,  it  must  be  borne  in 
mind  that  the  stimulation  of  building  in  the  case  of  the  tax 
on  value  increment  could  not  be  expected  to  be  the  same 
as  in  the  case  of  a  general  untaxing  of  buildings.  While  the 
influence  of  the  tax  on  building  operations  is  not  traceable 
in  the  extraordinary  increase  in  structures  in  western 
Canada  before  the  depression,  the  general  agreement 
among  the  Canadian  builders  themselves,  as  to  the  efficacy 
of  the  tax  in  stimulating  building  seems  to  substantiate 
the  generally  accepted  theory,  rather  than  that  which 
holds  that  the  tax  will  interfere  with  building  operations. 
Difficult  as  it  is  to  assert  any  positive  effect  of  the  tax 
on  housing  conditions,  it  is  more  difficult  to  discover  its 

^  Cf.  Haig,  Exemption  of  Improvements  from  Taxation  in  Canada  and 
the  United  States,  p.  273. 
*  See  supra,  chap,  v,  pp.  248 Jf. 


404  THE  TAXATION  OF  LAND  VALUE 

effect  on  speculation  in  land.  We  know  that  speculation 
is  still  rampant  in  the  countries  under  the  system  of  land- 
value  taxation.  And  in  the  circumstances  existing  in 
western  Canada,  it  would  seem  that  the  tax  was  introduced 
in  part  to  further  the  speculators'  interests.^  In  Austral- 
asia, the  state  land  taxes,  except  in  New  Zealand,  are  not 
heavy.  But  in  the  latter  colony,  evidence  of  the  dis- 
integration of  the  large  holdings  exists,  and  the  cause  is 
generally  found  in  the  high  graduated  and  absentee  rates. 
On  this  question  also,  our  conclusions  in  the  absence  of 
positive  proof,  must  be  qualified.  We  may  assume  that  a 
tax  levied  on  a  commodity  on  the  basis  of  its  capital  value 
will  tend  to  discourage  dealings  in  that  commodity.  Also 
that  a  tax  on  land,  as  is  generally  conceded,  tends  to 
encourage  its  utilization.  Thus  it  would  seem  that  the 
realty  tax  on  capital  value  in  American  cities  has  made  the 
withholding  of  land  "for  a  rise"  less  profitable  than  in 
England.  It  follows,  even,  that  were  the  tax  high  enough, 
as  high  as  the  transfer  duties  in  Paris,^  for  example,  realty 
operations  would  be  greatly  subdued.  But  where  land 
rises  rapidly  in  value,  speculation  will  continue  to  thrive, 
irrespective  of  the  tax.  So  much  may  therefore  be  assumed : 
since  anything  which  lessens  the  anticipated  income  from  a 
commodity  will  generally  decrease  the  desirability  of  that 
commodity  for  speculative  purposes,  a  discriminatory  tax 
on  land  will  put  a  damper  on  realty  transactions  and 
speculation.  The  degree  of  suppression  will  depend  on  the 
rate  of  tax  and  the  trend  of  land-value  increments. 

§  8.  In  the  preceding  chapter  it  was  found  that  specula- 

i   *  Cf.  tupra,  chapter  vi,  §  5. 

*  In  Paris  there  is  a  tax  of  six  per  cent  on  the  transfer  of  the  deed  and 
three  and  one-fourth  per  cent  for  other  expenses,  making  a  reduction  of 
nine  and  one-fourth  per  cent  of  the  value  on  every  transfer.  Of  course  the 
expectation  even  of  an  increase  in  tax  rate  suffices  to  give  speculation  in 
land  a  set-back.  Cf.  Reports  on  City  Real  Estate  Values,  compiled  by 
Seattle  Real  Estate  Association  (1907).  Cf.  also  Congrh  International 
de  la  PropriStS  FoncQre  (1900),  p.  109. 


THE  TAX  AS  A  SOCIAL  REFORM  405 

tion  in  land  had  its  function  in  society  under  private 
ownership,  but  Hke  other  social  privileges  it  was  capable  of 
abuse.  The  time  arrives  when  the  government  is  called 
upon,  or  compelled,  to  check  the  abuses  of  social  institu- 
tions. The  proposals  and  the  legislation  already  employed 
to  remedy  the  evils  arising  from  landed  property  are  many, 
but  chiefly  ameliorative.  The  most  radical  proposal  is  the 
public  appropriation  of  the  land.  The  question  of  the 
expediency  of  land  nationalization  is,  moreover,  closely 
allied  to  that  of  the  tax  on  land  value.  For  the  underlying 
motives  of  both  proposals,  as  social  reforms,  are  essentially 
the  same.  Without  entering  into  the  theoretical  inquiry  of 
the  justice  of  private  versus  social  property  in  land,  the 
facts  and  arguments  for  and  against  the  practicability  of 
pubUc  appropriation  will  throw  light  upon  the  social  ex- 
pediency of  the  tax  on  land  value. 

Of  the  advocates  of  public  ownership,  there  are  those 
who,  like  the  Single  Taxers,^  favor  the  nationalization  of 
all  the  land;  others  who,  like  Professor  Adolf  Wagner,^  have 
pointed  out  the  need  of  the  municipalization  of  urban  land, 
not  of  the  rural  landed  estates;  others  again,  a  more  numer- 
ous class,  who  urge  public  ownership  only  of  the  natiu-al 
resources,  mines  and  forests  for  conservation  purposes. 
In  examining  the  reasons  advanced  in  defense  of  these 
positions  the  threefold  classification  of  land  of  the  preced- 
ing chapter  will  be  of  assistance.  For  it  is  evident  that, 
if  the  conclusions  with  regard  to  the  trend  of  value  of  the 
several  kinds  of  land  are  valid,  public  ownership  may  be 
less  expedient  in  one  case  than  in  another. 

*  Of  the  noted  economists  who  favored  nationalization  John  Stuart 
Mill  and  IA>n  Walras  (see  EUments  D' Economic  Politique)  have  exerted 
a  great  influence.  The  latter  has  even  more  persistently  and  tenaciously 
defended  the  proposal  for  the  Single  Tax. 

'  How  far  Professor  Wagner  would  go  with  regard  to  restricting  the 
private  ownership  of  urban  land  is  not  certain.  Cf.  his  Grundlegung,  vol. 
II,  p.  470  ff.,  as  well  as  his  speech  on  "  Finanz-  und  Steuerfragen,"  in 
Schriften  der  GesellschafifUr  Sosiale  Reform  (1904),  Heft  15,  pp.  28/. 


406  THE  TAXATION  OF  LAND  VALUE 

§  9.  From  the  standpoint  of  the  appreciation  of  land 
value  no  reason  exists,  generally  speaking,  for  the  public 
appropriation  of  agricultural  lands,  which  are  characterized 
by  decrements  and  fluctuating  value,  rather  than  by  incre- 
ments. Nevertheless,  large  land  holdings  prevent  the  best 
utilization  of  the  land  and  tend  to  impoverish  the  peasant.^ 
The  data  showing  the  extent  and  significance  of  this  con- 
centration of  land  lend  weight  to  the  argument. 

The  experience  of  Australasia  ^  with  absenteeism  and 
large  landed  estates  is  not  peculiar.  The  conditions  in  most 
European  countries  (France  and  part  of  Germany  ex- 
cepted) are  similar.  The  concentration  of  land  holdings  in 
England  is  notorious.  From  statistics  of  England  and 
Wales  in  1872-73,'  it  has  been  shown  that  4917  owners 
(.5  per  cent  of  the.  whole 'number)  occupied  each  from 
1000  to  10,000  acres,  altogether  42.3  per  cent  of  the  whole 
area,  and  21.8  per  cent  of  the  product.  Of  the  whole  area  of 
England  and  Wales  (London  not  included)  10,207  persons 
owned  two-thirds;  of  18,950,000  acres  in  Scotland,  one 
person  owned  1,376,000,  while  1700  persons  possessed 
nine-tenths  of  the  whole  area.  In  Ireland,  1942  persons 
("these  owners  cannot  even  be  counted  among  the  inhabit- 
ants, for  they  are  mostly  absentee  landlords!")  owned  out 
of  the  20,160,000  acres,  two-thirds  of  the  whole."*  "Two- 
thirds  of  England,  nine-tenths  of  Ireland,  and  nineteen- 
twentieths  of  Scotland,"  says  Mulhall,"  ^  "are  held  in  own- 

*  See  Sering,  "Die  Innere  Kolonisation  in  Ostlichen  Deutschland," 
in  Schriften  des  Vereins  fiir  Socialpolitik,  vol.  LVI,  pp.  26 Jf. 

*  See  supra,  chapters  ii  and  iii. 

»  Wagner,  Grundlegung  (1894),  vol.  n,  p.  371:  "Die  colossale  Concen- 
trirung  riesiger  GrundstUckscomplexe  und  Grundrentenbeztige  in  wenigen 
HS.nden  Msst  sich  aber  bestimmt  nachweisen.  ...  In  Deutschland  und 
England  ist  der  landliche  Kleinbesitzerstand  von  der  Staatsgewalt  den 
grossen  Grundherren  preisgegeben  worden."  Then  follows  a  description 
of  the  condition,  the  superseding  of  the  small  farmers,  and  that  lawfully, 
by  the  big  landed  proprietors.  See  ibid.,  p.  374. 

*  Ibid. 

'  Mulhall,  Industries  and  Wealth  of  Nations,  p.  64. 


THE  TAX  AS  A  SOCIAL  REFORM  407 

ership  by  a  small  group  of  persons."  The  following  more 
recent  statistics  show  clearly  the  concentration  of  EngUsh 
land  in  the  hands  of  comparatively  few  individuals.  Thus, 
while  in  France,  of  the  7,200,000  of  the  population  engaged 
in  agriculture,  1,638,000  were  owners  of  land;  in  the  United 
Kingdom  out  of  an  agricultural  population  of  2,530,000 
only  19,275  were  land  owners.^  But  the  difference  in  the 
size  of  the  estates  is  equally  noteworthy;  in  France  the 
average  estate  was  56  acres,  in  the  United  Kingdom  it  was 
3003  acres. 

In  Austria-Hungary  the  two  largest  landholders  were 
said  to  be  the  Crown  and  the  Rothschild  family,  the  latter 
owning  eight  times  as  much  as  the  royal  family.^  The  fol- 
lowing data  appeared  in  "  Vorw^rts,"'  the  Socialist  German 
daily:  Fifty-two  per  cent  of  all  the  landlords  owned  some- 
what less  than  three-fifths  of  the  land  in  Hungary,  while 
only  .09  per  cent  of  the  proprietors  owned  31.19  per  cent, 
nearly  one-third  of  the  land.  Or  take  Bohemia  as  an  illus- 
tration of  the  concentration  of  the  land.  Here  sixteen 
persons  were  said  to  own  ten  per  cent  of  all  the  land.* 

Serious  as  this  charge  against  private  land  ownership  is, 
it  is  highly  questionable  whether  from  the  standpoint  of 
production  state  ownership  would  be  advantageous.  To 
utilize  rural  land  most  efl&ciently  private  ownership  is 
regarded  as  essential.  It  is  an  undisputed  fact  that  where 
the  cultivator  is  the  owner  under  the  existing  system,  the 
state  of  husbandry  is  most  favorable.    Whether  under  a 

*  These  figures  exclude  estates  of  less  than  twelve  acres.  (Mulhall, 
Industries  and  Wealth  of  Nations,  p.  115.)  If,  however,  the  small  holdings 
from  one  to  twelve  acres  are  included,  the  total  number  of  holdings  in 
Great  Britain  owned  by  their  occupiers  was,  in  1911,  60,217  or  11.73  per 
cent  of  all  the  holdings.  "  Since  1888  there  has  been  an  almost  uninter- 
rupted decline  in  the  proportion  of  the  acreage  owned  by  the  occupiers." 
Agricultural  Statistics  (Cd.  6021),  1911,  pp.  9-10. 

*  FlUrscheim,  Einziger  Rettungsweg,  pp.  78,  161. 

*  April  11,  1909.  The  data  were  obtained  from  a  current  edition  of 
Jahrhundert  in  Budapest. 

*  FlUrscheim.  op.  cit. 


408  THE  TAXATION  OF  LAND  VALUE 

leasing  system  by  the  state  a  suflficiently  secure  tenure 
could  be  assured  the  tenant  to  induce  him  to  invest  the 
same  amount  of  capital  as  if  he  owned  in  fee  simple  is  a 
matter  of  speculation.  Not  only  from  the  standpoint  of 
production,  but  also  from  that  of  administration  state 
ownership  would  be  a  precarious  undertaking.  Added  to 
these  considerations  the  method  of  appropriation  must 
be  inquired  into.  The  impossibility  of  purchasing  all  the 
land  leaves  only  one  course  clear,  namely  confiscation,  a 
measure  justified  in  extreme  exigencies  only.  In  judging 
of  the  expediency  of  the  nationalization  of  the  soil,  there- 
fore, the  evils  of  absenteeism,  of  large  holdings,  of  peasant 
exploitation  and  pauperization  in  some  countries  must  be 
weighed  on  the  one  hand;  on  the  other,  the  responsibility 
that  ownership  would  impose  upon  the  state,  the  efficiency 
of  public  versus  individual  enterprise,  the  security  of  tenure 
under  private  ownership,  the  trend  of  depreciating  and 
fluctuating  agricultural  values,  and  the  revolutionary,  con- 
fiscatory means  to  be  employed.  Nor  must  it  be  forgotten 
(1)  that  the  concentration  of  agricultural  holdings  is 
characteristic  only  of  certain  countries,^  and  (2)  that  other 
legislative  action  has  been  proposed  to  disintegrate  the 
large  estates.^ 

The  effectiveness  of  the  tax  on  land  value  to  overcome 
the  deficiencies  of  private  landownership,  will  depend 
chiefly  upon  the  vigor  with  which  the  screw  is  tightened. 
The  low  tax  rate  which  now  prevails  has  had  little  effect 
in  disintegrating  large  estates,  for  the  expectation  of  a 
future  value  increment  conduces  to  the  payment  of  the 

*  In  the  United  States  about  five-sixths  of  the  farm  land  is  in  private 
hands.  In  forty-eight  per  cent  of  our  area  the  size  of  farm  holdings  is 
increasing,  in  the  remaining  fifty-two  per  cent  the  size  is  either  decreasing 
or  there  is  no  appreciable  change.  The  tendency  toward  the  increase  in 
size  of  holdings  is  more  pronounced  in  the  newly  settled  western  states. 
Report  of  the  U..  S.  National  Conservation  Commission,  vol.  i,  p.  84. 

*  Cf.  in  England,  the  Small  Holdings  and  Allotments  Acts;  in  Ger- 
many, the  colonization  laws  (Ansiedelungspolitik). 


THE  TAX  AS  A  SOCIAL  REFORM  409 

tax  rather  than  to  relinquishment  of  the  holding.  But  if 
made  too  discriminatory,  the  same  objections  apply  as  to 
public  appropriation  and  confiscation  with  which  it  may 
become  identical.  To  be  most  effective,  the  tax  should 
be  levied  (1)  according  to  a  progressive  scale  of  rates  to 
strike  hardest  at  the  large  and  absentee  landlord,  (2)  with 
a  minimum  exemption  embracing  most  of  the  land  under 
cultivation,  and  (3)  by  the  state  or  central  authority,  that 
alone  should  retain  the  power  to  use  the  tax  as  a  weapon  of 
social  reform.  Thus  far  only  New  Zealand  has  found  it 
expedient  to  apply  the  weapon  vigorously.  But  at  all 
events,  by  the  levy  of  the  wild  land,  the  increment  and 
graduated  taxes,  the  government  shares  the  value  incre- 
ment without  imposing  a  very  great  burden  upon  the  large 
holder,  while  exempting  the  small  owner  and  cultivator 
altogether. 

For  local  revenue,  the  expediency  of  a  tax  on  land  value 
.  in  rural  districts  will  depend  upon  other  conditions.  Levied 
in  conjunction  with  the  state  or  county  rate,  the  imposi- 
tion may  put  an  extra  burden  upon  the  rural  district,  while 
it  relieves  the  owners  of  urban  property.  For  local  purposes, 
on  the  other  hand,  with  local  autonomy,  or  with  apportion- 
ment according  to  expenditure,^  the  tax  on  land  value, 
provided  it  is  sufficiently  productive,  would  be  a  decided 
improvement  over  the  present  widely  current  general 
property  tax,  which  taxes  stock  and  agricultural  imple- 
ments. The  exemption  of  all  improvements,  such  as  build- 
ings, would  occasion  but  a  slight  increase  in  rate  because 
their  value  is  small  in  comparison  with  that  of  the  land. 
An  additional  rate  on  vacant  and  absentee  holdings,  as  is 
practiced  in  Canadian  rural  municipalities,  might  in  some 
cases  more  than  recompense  the  loss  in  revenue  through 
the  exemption  of  improvements. 

§  10.  In  so  far  as  professional  land  speculation  is  com- 
bined with  speculative  building  operations,  and  in  so  far  as 
*  C/.  Purdy,  Local  Option  in  Taxation,  pp.  18-19. 


410  THE  TAXATION  OF  LAND  VALUE 

speculative,  overcapitalized  values  may,  though  indirectly, 
drive  up  rent  (especially  likely  because  so  many  factors 
enter  into  the  choice  of  dwellings),  the  expediency  of 
checking  speculation  in  urban  land  may  become  urgent. 
But  these  abuses  of  private  property  rights  have  played 
only  minor  roles  in  producing  the  acute  housing  prob- 
lem which  it  is  sought  to  solve.  It  is  not  to  be  wondered 
that  the  improvement  in  housing  considered  "as  part  of 
the  great  work  of  national  regeneration  with  a  view  to 
secure  the  health,  safeguard  the  pockets,  and  raise  the 
housing  standard  of  the  working  classes,"  ^  should  be 
regarded  by  many  as  dependent  primarily  upon  govern- 
ment control  of  building  operations  and  ownership  of  the 
land.  The  advantages  of  municipal  land  ownership  have 
been  enumerated  as  follows:  ^ 

(1)  More  economical  grouping  of  buildings  instead  of 
the  odd  and  scattered  houses  of  the  "jerry  builder"  would 
ensue. 

(2)  Non-speculative  land  values  would  cheapen  building 
sites. 

(3)  Buildings  on  a  large  scale  erected  by  the  municipality 
would  reduce  the  expenses  of  construction. 

(4)  Or,  if  the  land  were  leased  to  companies  of  working 
men  or  builders,  and  capital  advanced  to  them  by  the 
public  loan  association  at  low  rates  of  interest,  a  saving 
would  result. 

(5)  The  municipality  would  be  satisfied  with  a  smaller 
profit  than  the  individual  owner. 

(6)  The  management  of  a  large  number  of  dwellings 
would  reduce  expenses. 

(7)  Capital  could  be  borrowed  at  lower  rates  of  interest. 

*  Thompson,  The  Housing  Handbook,  p.  151. 

*  Ibid.  Mr.  Thompson  was  not  considering  the  municipalization  of  all 
the  land,  but  the  housing  experiments  undertaken  by  certain  English 
cities.  Cf.  also,  "  Report  of  the  Land  Enquiry  Committee,"  The  Land 
(1914),  vol.  II,  pp.  108  Jf. 


THE  TAX  AS  A  SOCIAL  REFORM  411 

It  will  be  noted  that  this  assumes  the  municipality  to  be 
not  only  the  landowner,  but  the  contractor,  builder,  and 
loan  agency  as  well.  In  view  of  the  radical  change  which  is 
here  involved,  we  may  ask  to  what  extent  the  above  ad- 
vantages of  municipalization  may  be  expected  to  material- 
ize. In  the  absence  of  any  experience  with  municipal  land 
ownership  as  a  whole,  it  may  nevertheless  be  of  value  to 
review  the  results  of  minor  municipal  housing  operations. 
Germany  and  England  furnish  examples.  The  "Boden- 
politik"  of  German  towns  ^  is  rapidly  spreading.  Many 
building  experiments  on  town  land  have  been  tried.  In 
Ulm,  for  example,  where  the  government  owns  a  large 
portion  of  the  land,  houses  have  been  erected  at  public 
expense  and  the  property  sold  to  private  individuals  under 
restrictions,  e.g.,  the  government  retaining  the  right  to 
repurchase  the  property  under  certain  conditions  (Wieder- 
kaufsrecht).  Frankfurt  a.  M.  and  Leipzig,  on  the  other 
hand,  find  it  expedient  to  lease  their  land  for  building  for  a 
term  of  years,  after  which  the  property  reverts  to  the 
cities  (Erbbaurecht).  Freiburg  i.  B.  and  Zlirich,  on  the 
other  hand,  have  experimented  with  the  erection  of  houses 
on  their  town  land  which  they  rent  directly  to  the  occu- 
piers.2  As  these  undertakings  have  been  in  operation  but  a 
short  time,  and  are  of  small  scope,  i.e.,  only  a  small  per- 
centage of  the  population  have  been  accommodated,  the 
evidences  of  success  are  inconclusive.  According  to  Dr. 
Pohle '  only  a  small  proportion  of  the  inhabitants  have 
availed  themselves  of  these  houses  and,  generally  speaking, 
no  material  reduction  in  rental  has  ensued. 

Similar  motives,  the  betterment  of  the  housing  condi- 
tions of  the  working  classes,  actuated  the  passage  of  the 
English  Housing  Acts  of  1890  and  1900.  Part  III  of  the 
amended  Act  provides  for  the  compulsory  purchase  by  the 

*  See  supra,  chapter  iv,  §  8. 

*  Pohle, "  Die  Wohnungsfrage,"  in  EandJbuch  der  Politik,  vol.  n,  p.  522. 

*  Ibid.  Sect  also  hb  Wohnungsfrage, 


412  THE  TAXATION  OF  LAND  VALUE 

local  authority  of  land  in  the  outskirts  of  the  town  to  be 
built  upon  in  any  one  of  the  following  ways :  ^ 

(1)  By  the  council. 

(2)  By  leasing  the  land  to  companies,  or  builders,  or  to 
working  men  for  the  erection  of  workmen's  dwellings;  or 

(3)  By  "any  company  employing  workmen,  or  estab- 
lished for  constructing  or  improving  workmen's  dwellings; 
or  by  any  private  person  or  persons  entitled  to  a  free-hold 
estate  in  land  or  to  lease  for  an  unexpired  period  of  fifty- 
eight  years  who  may  borrow  from  the  Public  Works  Loan 
Commissioners  at  low  rates  of  interest  for  not  more  than 
forty  years,  half  the  amount  required  to  erect  dwellings 
for  the  working  classes,  and  may  supply  water  or  gas  to  the 
tenants  free  of  charge  or  on  favorable  terms." 

Many  local  authorities  have  already  taken  advantage  of 
the  provisions  of  this  Act,  among  which  are  London, 
Glasgow,  Liverpool,  and  Manchester.  ^  The  following  sum- 
marizes the  "commercial"  success  of  "sixteen  municipal 
housing  schemes  involving  a  capital  outlay  of  about 
£1,300,000":'  "They  show  a  gross  return  of  about 
6^  per  cent,  and  a  profit  of  about  S^  per  cent.  ...  In  eight 
cases  the  profits  have  been  more  than  suflBcient,  not  only  to 
pay  interest  on  the  capital  outlay,  but  also  to  provide  the 
whole  of  the  sinking  fund  contributions.  In  nine  cases  the 
profits  have  been  more  than  sufficient  to  pay  interest  on 

*  Thompson,  op.  cit.,  p.  35. 

'  Under  the  amended  Act  of  1909,  the  supply  of  working-class  dwell- 
ings by  local  authority  and  the  purchase  of  land  compulsorily  have  been 
greatly  stimulated,  as  is  shown  from  the  subjoined  data  {Report  of  the 
Land  Enquiry  Committee,  vol.  ii,  p.  215) : — 

HOUSES  AND  TENEMENTS  BUILT  BY  THE  LOCAL  AUTHORITIES  IN 
ENGLAND  AND  WALES,  1890-1913 


Year* 

Houset 

TenemenU 

Lodging-houtet 

1890-1899 
190<>-1909 
1910-1913 

822 
3594 
4867 

772 

1955 

197 

S 
S 

*  Thompson,  op.  cit.,  p.  171. , 


THE  TAX  AS  A  SOCIAL  REFORM  413 

capital,  but  have  only  provided  part  of  the  sinking  fund.  In 
only  three  cases,  Liverpool  (blocks)  and  Manchester  (blocks 
and  tenements),  have  the  profits  been  insufficient  to  pay  all 
the  interest  on  capital.  When  it  is  remembered  that  the 
workmen  tenants  of  those  dwellings  contribute  £21,157  a 
year  to  the  rates  and  taxes,  and  over  £10,000  a  year  to  a 
sinking  fund  for  the  purpose  of  buying  property  for  the 
community  at  large,  it  must  readily  be  admitted  that  more 
reasonable  financial  arrangements  ought  to  be  supported 
by  Parliament  so  as  to  enable  the  rents  to  be  reduced." 

When  the  dilapidated,  insanitary  housing  conditions  of 
a  city  become  as  threatening  as  in  Glasgow  and  London, 
for  example,  unless  other  remedies  can  be  found,  the  muni- 
cipality ^  may  be  compelled  to  resort  to  public  building 
operations,  just  as  cities  now  operate  other  public  utilities. 
In  that  case,  however,  the  European  experience  tends  to 
show  that  the  anticipated  economies  of  government  own- 
ership must  be  waived,  for  commercially  speaking,  such 
undertakings  have  seldom  been  remunerative.''  With  all 
the  savings  in  the  expenses  of  construction,  the  municipal 
building  enterprises  not  only  have  not  yielded  a  profit  so 
high  as  that  of  the  private  landlords,  but  they  have  not 
even  been  instrumental  in  lowering  the  rental.'  What 
they  have  accomplished  is,  nevertheless,  of  great  impor- 
tance, namely,  the  improvement  of  the  standard  of 
housing. 

It  must  be  admitted,  however,  that  such  partial  experi- 

*  In  the  opinion  of  certain  members  of  the  National  Housing  Associa- 
tion the  slums  in  English  cities  "  while  similar  to  those  of  Philadelphia 
and  Baltimore  are  not  as  bad  as  the  worst  in  the  American  cities."  The 
Survey,  October  SI,  1914,  p.  108. 

2  IWd. 

*  Thomspon,  op.  cit.,  p.  178.  It  may  well  be  that  the  financial  failure 
of  public  building  operations  is  due  to  the  present  policy,  which  provides 
for  the  purchase  of  condemned  or  other  property.  The  purchase  price  of 
the  land  is  in  many  cases  exorbitant  and  this  may  make  impossible  an 
average  return  on  the  capital  invested.  Cf.  Report  of  the  Land  Enquiry 
Committee,  vol.  ii,  pp.  242  jf. 


414  THE  TAXATION  OF  LAND  VALUE 

ments  in  municipal  housing  as  have  been  attempted  in 
Germany  and  England  are  far  from  conclusive  evidence  of 
the  effect  of  total  municipalization  of  land  on  rent  and  land 
value.  Were  this  extreme  reform  practicable,  it  is  readily 
conceivable  how  the  public  appropriation  of  land  value 
might  benefit  the  urban  tenants,  not  alone  in  the  better 
utilization  of  the  land,  so  as  to  relieve  the  congestion  of 
population,  but  also  by  expending  the  enormous  value 
increment  of  urban  property  which  now  accrues  to  private 
individuals  for  public  utilities  and  improvements.  The 
question  resolves  itself  into  one  of  practicability. 

What  does  the  municipalization  of  the  land  involve? 
There  are  only  two  ways  in  which  the  community  could 
get  possession,  first,  acquisition  by  purchase,  or  secondly, 
confiscation.  The  first  would  unquestionably  burden  the 
community  with  a  debt  too  enormous  to  contemplate,  so 
that  compensation  for  town  land,  except  for  new,  recently 
settled  communities,  is  not  feasible.  As  for  the  second 
means,  the  confiscation  of  urban  property,  not  only  would 
it  inflict  a  severe  loss  uix)n  a  single  class  of  the  population, 
but  such  a  revolutionary  measure  would  bring  other  conse- 
quences that  might  disrupt  the  entire  social  system. 
Moreover,  society  at  present  and  for  a  long  time  to  come 
will  not  tolerate  such  a  course;  nor  should  it  be  advocated 
in  view  of  the  present  conceptions  of  justice  and  equality, 
except  in  the  direst  need  of  the  state.  For  a  long  time  to 
come,  therefore,  less  drastic  and  more  practicable  measures 
must  be  found  to  help  solve  the  urban  problem  which  must 
be  admitted  to  be  grave  and  urgent. 

From  the  tax  on  land  value,  however,  little  is  to  be 

hoped  in  the  way  of  a  solution  of  the  housing  problem, 

except  as  the  supply  of  accommodations  may  be  affected.^ 

^  One  of  the  causes  of  the  acute  shortage  of  houses  in  England  was, 
according  to  the  Land  Enquiry  Committee  (see  Report,  vol.  ii,  p.  87),  the 
increased  attractiveness  of  alternative  investments.  "  New  house  prop- 
erty, then,  b  decidedly  less  attractive  as  an  investment  than  it  was  a  few 
years  ago."  Might  not  the  untaxing  of  buildings  remedy  this? 


THE  TAX  AS  A  SOCIAL  REFORM  415 

Furthermore,  the  expediency  of  checking  speculation  in 
urban  land  by  means  of  a  tax  might  be  doubted,  if  it 
were  not  for  another  consideration. 

We  have  seen  the  inevitable  upward  trend  of  the  value 
of  land  in  progressive  cities.  This  tendency  even  public 
ownership  cannot  prevent,  except  in  so  far  as  the  un- 
systematic, wasteful  use  of  land  under  private  ownership 
and  the  screwing  up  of  speculative  values  might  cease. 
But  it  has  been  asked,  why  should  the  increments  due  to 
social  influences  accrue  to  private  individuals?  The  need 
for  social  and  recreational  centers,  for  parks  and  play 
grounds,  and  other  public  utilities  is  increasing  and  these 
in  turn  tend  to  increase  the  value  of  land.  Why  not  set 
aside  these  socially  created  values  to  meet  the  increasing 
public  expenditures?  If  the  argument  is  advanced  from 
the  standpoint  of  right  or  justice,  the  counter-argument  is 
equally  valid,  namely,  that  other  value  increments  are 
socially  created  and  should  be  likewise  appropriated  for  the 
benefit  of  the  whole  community.  From  the  standpoint  of 
expediency,  however,  in  view  of  the  foregoing  reasons  for 
reform,  an  additional  tax  on  land,  which  would  give  the 
community  a  share  in  the  increments  accruing  from  land,  is 
winning  adherents.^ 

§  11.  In  the  case  of  agricultural  land  we  saw  that 
government  ownership  of  the  land  was  not  expedient;  in 
the  case  of  urban  realty,  the  expediency  of  the  method  of 
municipalization  was  questionable.  Now,  we  ask,  does  the 
need  of  conservation  of  natural  resources  necessitate  their 
appropriation  by  the  state?  The  need  of  conservation  in 
the  face  of  the  wasting  character  of  these  resources  has 
abeady  been  discussed.^  The  reports  of  the  commissions  on 
conservation  all  agree  that  most  nations  have  not  acted 

*  Cf.  Seligman,  in  Proceedings  of  National  Tax  Association  (1914), 
p.  191. 

*  Supra,  chapter  viii,  §  9.  Cf.  also  Summary  of  the  Commissioner  of 
Corporations  on  the  Lumber  Industry  (February  13, 1911),  part  i. 


416  THE  TAXATION  OF  LAND  VALUE 

very  expediently  in  disposing  of  their  forest  and  mineral 

land.   The  following  data  show  the  percentage  of  forest 

area  under  government  ownership:  ^ 

Great  Britain ; 2.2  per  cent 

Italy 4.0   "  " 

France 12.0    "  " 

United  States  (national  and  state) 18.9  "  " 

Norway .... 28,5   "  " 

(  imperial    31.9  ) 

Germany  <  crown          1.8  >    49.8   "  " 

(  municipal  16.1  ) 

Finland 61.2    "  " 

Spain 84.0   "  " 

Russia 87.3   "  " 

Recognizing  the  need  of  conserving  at  least  the  existent 
forest  land,  for  "forests  exercise  an  influence  on  the  water 
supply,  on  agriculture  and  on  the  general  health  of  the 
people,"^  there  is  a  general  movement  in  European  coun- 
tries to  add  to  the  public  forest  reservations  by  purchase. 
Since  1870  France  has  not  only  made  no  sale  of  forest  land, 
but  has  each  year  consigned  more  land  to  forestry.  France 
has  spent  nearly  200,000,000  francs  in  reforesting  dunes 
and  devastated  mountain  sides.  Germany  likewise  spent, 
in  the  years  1867-95,  over  22,000,000  marks  in  increasing 
her  forest  domain.'  This  policy  is  now  being  followed  by 
Austria  and  Italy.  The  United  States  has  only  recently 
been  aroused  to  the  problem  of  conservation.  Yet  in  this 
country,  "in  timber  lands  the  tendency  toward  consolida- 
tion is  strong  and  has  gone  far  toward  placing  control  of 
such  lands  in  a  few  hands.  It  appears  that  the  monopoly  is 
partly  in  the  interest  of  economy  in  logging,  milling  and 
manufacturing,  but  chiefly  speculative."  *  The  wasteful- 
ness of  our  forestry  system  has  already  been  pointed  out.^ 

The  policy  with  regard  to  mines  is  not  different.  While 
the  German  States  and  France  find  it  profitable  not  only  to 

'  Report  of  the  National  Conservation  Commission  (1909),  vol.  ii,  pp. 
280,  345. 

'  Ibid.,  p.  281.  *  Adams,  Science  of  Finance,  pp.  244-45. 

*  Report  of  the  National  Conservation  Commission  (1909),  vol.  i,  p.  85. 

*  Supra,  chapter  viii,  §  9. 


THE  TAX  AS  A  SOCIAL  REFORM  417 

own  but  also  to  operate  the  mines,  England  and  the 
United  States  have  disposed  of  most  of  their  mineral  land. 
Moreover,  the  tendency  of  concentration  in  mine  holdings 
is  evident  in  this  country.  Especially  is  this  true  of  the  iron 
mines  which  is  explained  by  the  greater  economy  of  large 
operations.  In  oil  lands  this  tendency  toward  concentra- 
tion is  said  to  be  apparently  slight,  while  in  coal  lands  it  is 
intermediate.^ 

Now  that  these  important  resources  have  been  disposed 
of  by  the  government,  the  question  of  the  expediency  of 
repurchasing  them  arises.  To  devote  a  certain  sum 
annually  to  the  repurchase  of  natural  resources  as  the 
European  countries  are  doing,  is  a  far  different  matter  than 
either  purchasing  or  confiscating  all  the  land.  Moreover, 
the  operation  of  mines  and  forests  is  different  from  agri- 
cultural production.  Especially  is  this  true  of  forests.  The 
forests  under  state  management  in  Germany  are  said  to 
yield  considerably  greater  returns  than  those  under  private 
ownership;  ^  the  protection  against  waste  and  fires  can  be 
better  undertaken  by  publicly  trained  officials  than  by  the 
absentee  speculator.  But  while  the  nature  of  forest  cultiva- 
tion permits  of  public  ownership,  the  efficiency  of  govern- 
ment operation  of  the  mines  as  compared  with  private 
enterprise  is  doubtful.  Yet  a  few  government-owned  mines 
operated  whenever  the  private  monopolist  unwarrantably 
raises  the  price  of  the  mineral,  or  always  operated  in  compe- 
tition with  the  privately  owned  mines,  might  be  highly 
advantageous  to  the  consumer.  Again  we  say,  unless  a 
sufficient  amount  of  government  control  can  be  exercised 
to  prevent  the  enormous  waste  and  to  break  up  the  monop- 
oly (the  tendency  toward  the  monoply  of  natural  resources 
is  well  established  ^),  public  ownership  through  the  policy 
of  repurchase  might  be  found  expedient  and  feasible. 

*  Report  of  the  National  Conservation  Commission,  vol.  i,  pp.  84-85. 
»  Ibid.,  vol.  ir,  p.  388. 

•  Cf.  Summary  of  Report .  .  .  on  Lumber  Industry  (1911),  vol.  i,  pp.  6-8. 


418  THE  TAXATION  OF  LAND  VALUE 

In  the  case  of  forest  and  mineral  land,  the  taxing 
authority  must  be  governed  by  other  considerations  than 
the  withholding  of  the  land  from  use.  To  promote  the 
conservation  of  forests,  the  levy  should  be  such  as  to 
encourage  reforestation,  at  the  same  time  that  it  prevents 
a  combination  of  owners  of  timber  land  from  limiting  and 
controlling  the  supply  with  the  purpose  of  keeping  prices 
high.  A  heavy  annual  tax  on  the  value  of  the  land  only  will 
not  tend  to  encourage  forest  reserves;  and  yet,  if  assessed 
by  expert  valuers  and  uniformly,  it  would  be  an  improve- 
ment over  the  present  system  which  taxes  the  value  of  the 
trees  under  haphazard  estimates  of  value.  According  to 
an  authority  on  forest  taxation.  Professor  Fairchild,^  the 
best  tax  is  one  based  on  the  yield  at  the  time  the  trees  are 
cut.  This  he  thinks  will  encourage  the  growth  of  forests, 
although  his  discussion  discloses  numerous  difficulties 
which  the  proposal  involves.  Some  states,  it  must  be  noted, 
have  even  subsidized  the  owners  of  forests  in  the  interest  of 
conservation,  instead  of  taxing  them.  Which,  then,  is  the 
most  expedient  method?  There  seems  to  be  one  system, 
which  without  injury  to  the  lumber  industry  in  any  way, 
and  while  aiding  the  conservation  of  forests,  would  yet 
secure  to  the  state  a  share  of  the  landowner's  profits.  That 
method  is  the  taxation  of  the  value  increment  at  the  time  of 
transfer  of  the  property.  This  is  on  the  supposition  that 
the  value  of  the  deforested  land  itseK  would  show  an  incre- 
ment over  the  purchase  price.  ^  Taxation,  however,  will  not 

*  Report  of  the  National  Conservation  Commission  (1909),  vol.  ii,  pp. 
615  ff.  See  also  Proceedings  of  the  Sixth  Conference  on  State  and  Local 
Taxation,  pp.  371-93. 

^  The  supposition  is,  however,  borne  out  as  a  fact  in  the  Summary 
of  the  Report  on  the  Lumber  Industry,  Pt.  i,  p.  87:  "  After  all  the  timber  has 
been  cut  from  the  great  private  holdings  the  value  of  the  land  alone  will 
be  enormous.  Much  of  this  cut-over  land  may  be  best  adapted  for  new 
growth,  in  which  case  there  may  be  a  continuing  concentration  of  timber 
ownership.  A  large  part  of  the  land,  however,  may  be  exceedingly  valu- 
able for  agricultural  purposes." 

The  system  of  assessment  and  collection  of  the  tax  could  be  modeled 


THE  TAX  AS  A  SOCIAL  REFORM  419 

solve  the  question  of  forest  conservation.  Only  by  the 
efforts  of  the  federal  government  in  getting  control  of  a 
sufficient  area  on  which  to  grow  forests  as  the  European 
nations  are  doing,  and  in  this  way  to  compete  with  the 
private  holders  of  forest  land  can  we  hope  that  the  concen- 
tration and  private  control  of  timber  land  will  be  broken. 

The  case  is  somewhat  different  with  mineral  land.  The 
value  of  the  mine,  as  of  all  land,  depends  upon  a  variety  of 
social  causes;  but  it  also  depends  upon  the  amount  and 
quality  of  the  minerals  it  contains.  Mines  are  for  the  most 
part  exhaustible,  and  the  expense  of  mining  increases  the 
deeper  the  veins  are.  For  this  reason  the  capital  value  of 
mines  is  determined  with  difficulty.  Because  of  this  pecu- 
liarity the  new  English  duty  calculates  the  capital  value  of 
mines  by  capitalizing  the  rental  on  the  basis  of  twelve  and 
a  half  years  instead  of  at  twenty  or  more  as  in  the  case  of 
other  land.  Nevertheless,  an  approximately  accurate 
valuation  could  be  made  of  a  working  mine  by  following  the 
method  of  rental  payments.  In  England  it  is  customary 
for  the  most  part  to  lease  the  mine  to  an  entrepreneur  who 
pays  a  "dead  rent"  for  a  certain  amount  of  minerals 
brought  to  the  surface,  and  a  royalty  for  the  excess  over 
that  quantity,  allowing  also  for  shortages.  According  to 
Professor  Marshall,^  "the  royalty  itself  on  a  ton  of  coal, 
when  accurately  adjusted  represents  that  diminution  in 
the  value  of  the  mine,  regarded  as  a  source  of  wealth  in  the 
future,  which  is  caused  by  taking  the  ton  out  of  nature's 
storehouse."  Granted  that  the  economic  rent  could  be  thus 
computed,  this  value  could  be  found  only  when  the  mine 
was  being  worked.  To  levy  a  tax  on  the  value  of  mines, 
therefore,  some  plan  like  the  English  duty  must  be 
devised.  2  But  a  tax  will  not  assure  the  conservation  of  this 

after  the  English  value-increment  duty.  In  case  of  a  corporation,  for 
example,  the  payment  could  be  made  every  fifteen  or  more  years. 

^  Principles  of  Economics  (6th  ed.),  p.  439. 
•    '  Cf .  supra,  chapter  v,  §§  10,  11. 


420  THE  TAXATION  OF  LAND  VALUE 

class  of  land.  To  prevent  the  monopolization  and  waste 
of  mines,  the  opinion  is  current,  only  public  ownership  can 
be  effective  enough. 

§  12.  Having  shown  the  inadequacy  of  the  tax  on  land 
value  seriously  to  check  speculation,  reduce  rents,  and 
ameliorate  housing  conditions,  it  is  needless  to  dwell  long 
on  the  further  social  benefits  which  have  been  loudly  pro- 
claimed. Thus,  the  tax  it  was  claimed  would  affect  in- 
dustry and  the  general  distribution  of  wealth.  For  the 
exemption  of  improvements  would  encourage  building 
operations,  and  this  stimulation  in  building  would  promote 
not  only  the  building  trade,  but  other  industries  as  well. 
Not  only  would  the  employment  of  capital  be  aided  by  the 
remission  of  the  tax  on  improvements,  but  labor  too  would 
experience  a  "boom";  the  wages  of  building  employees 
would  tend  to  rise,  the  demand  for  other  commodities 
would  be  enhanced,  production  in  general  would  be  stimu- 
lated, leading  to  a  cheapening  of  many  commodities, 
whereby  the  laborer  as  consumer  would  again  benefit.* 
In  this  way  the  simple  reform  of  taxing  the  value  of  land 
would  have  within  itself  the  possibility  of  materially  in- 
fluencing the  distribution  of  wealth,  not  only  diverting 
some  of  the  value  increment,  now  accruing  to  the  landlord, 
to  the  relief  of  the  public  budget,  but  uplifting  the  working 
class  through  better  housing,  cheaper  rents,  higher  wages, 
lower  prices. 

Judging  from  our  study,  these  hopes  appear  vain,  on  the 
whole.  The  reason,  perhaps,  for  the  failure  of  the  tax  to 
become  a  reform  of  wide-reaching  influence  lies  in  the  harm- 
less nature  of  the  change.  It  is  unreasonable  to  expect  that 
a  two  or  even  three  per  cent  tax  on  the  value  of  land,  or  that 

*  The  United  Committee  for  the  Tax  on  Land  Values,  Third  Report,  p.  64: 
"^By  the  transfer  of  the  burden  of  taxation  on  to  Land  Values  production 
would  be  increased  and  the  price  of  commodities  lowered;  the  conditions 
of  labor  of  all  kinds  would  be  improved;  wages  would  be  higher  and 
employment  more  regular,  and  the  foundation  would  be  laid  of  equitable 
relations  between  man  and  man." 


THE  TAX  AS  A  SOCIAL  REFORM  421 

the  remission  of  such  a  rate  on  improvements  would,  in  oup 
complex  social  system  of  interacting  forces,  bring  forth  the 
millenium.  Nevertheless,  as  a  fiscal  measure,  its  influence 
towards  reform,  its  tendency  to  check  speculation  in  land, 
to  relieve  congestion,  to  appropriate  some  of  the  value 
increment  for  public  purposes,  and  thus  to  relieve  the 
burden  to  some  extent  from  industry,  outweigh  the  charge 
of  discrimination  against  the  landowning  class,  involved  in 
the  proposal  to  put  a  higher  tax  on  them  than  they  had 
anticipated  at  the  time  of  their  investment.^  Not  as  a 
panacea,  then,  for  all  social  evils  and  economic  mal- 
adjustment, although  its  influence  may  be  beneficial  with 
regard  to  these,  but  as  a  tax  must  the  expediency  of  the 
tax  on  land  value  be  determined. 

*  "I  have  never  been  able  to  understand,"  says  Seligman,  "why  a  man 
who  has  invested  in  land  should  be  exposed  to  the  danger  of  having  a  part 
of  his  property  taken  away  from  him?  When  he  invested  his  money  in  land 
it  was  on  the  basis  of  the  accepted  policy  of  social  justice,  that  private 
property  in  land  was  to  be  treated  like  private  property  in  other  things." 
(The  Survey,  March  7, 1914,  p.  700.)  A  student  of  the  changes  that  have 
recently  taken  place  in  the  policy  of  legislation  should  no  longer  wonder 
that  the  accepted  policy  of  social  justice  is  not  permanent.  The  end,  which 
is  in  this  case  social  welfare,  justifies  the  means. 


CHAPTER  X 

EXPEDIENCY   OP  THE  TAX  ON   LAND   VALUE  FOR 
THE   UNITED    STATES 

§  1.  The  inadequacy  of  the  tax  on  land  value  as  an 
effective  means  of  reforming  the  social  evils  discussed  in 
the  preceding  chapters  reduces  the  consideration  of  the 
adoption  of  the  tax  to  its  expediency  as  a  fiscal  measure. 
The  expediency  of  introducing  a  new  tax  must  be  deter- 
mined: (1)  by  the  need  of  an  additional  source  of  public 
revenue;  or  (2)  by  the  efficiency  or  inefficiency  of  the  exist- 
ing system;  or  (3)  by  the  special  advantages  of  the  pro- 
posed change.  But  even  though  by  these  criteria  condi- 
tions were  favorable  to  the  adoption  of  a  new  tax,  the 
opposition  of  interested  parties,  the  conservatism  of 
public  opinion,  as  well  as  the  constitutional  barriers,  would 
have  to  be  reckoned  with  and  overcome.  What,  then,  is 
the  situation  in  this  country  with  regard  to  the  new  tax? 

If  proof  were  needed  of  the  deep  concern  that  problems 
of  taxation  are  giving  public  officials  as  well  as  fiscal  au- 
thorities, their  interest  in  the  conferences  of  the  Inter- 
national Tax  Association  and  the  activity  of  the  different 
state  legislatures  in  creating  tax  commissions  within  recent 
years  should  be  noted.  The  primary  cause  of  this  concern 
is  the  necessity  of  covering  the  ever-increasing  budgets 
with  revenue  from  the  old  and  inadequate  sources.  This 
need  does  not  appear  in  the  budget  of  our  national  govern- 
ment which  is  supported  adequately  by  excise  and  tariff 
duties,  and  by  income  and  corporation  taxes,  nor  in  that 
of  the  state  governments,  whose  expenditures  even  tend  to 
decrease  per  capita  of  the  population.  The  greatest  fiscal 
need,  as  will  be  shown  in  the  following  section,  is  to  be 
found  within  the  local  bodies  whose  rapidly  growing  ex- 


LAND-VALUE  TAX  IN  UNITED  STATES      423 


penditures  must  be  met  almost  wholly  from  the  selfsame 
sources. 

A  second  cause  of  the  mterest  which  tax  questions  are 
arousing  is  the  inequality  of  burden,  and  the  general  de- 
fectiveness of  the  existing  systems  of  taxation.  But  the 
dissatisfaction  is  directed  chiefly  against  the  operation  of 
the  general  property  tax.  And  inasmuch  as  the  local  gov- 
ernments in  this  country  rely  almost  exclusively  on  the 
general  property  tax  for  their  revenue,  the  most  needed 
reform  is  in  local  taxation. 

Coming  now  to  the  tax  on  land  value,  the  more  fruitful 
and  opportune  inquiry  will  be  concerned  with  its  expedi- 
ency as  a  local  tax.  This  position  is  all  the  more  justified, 
when  we  consider  that  the  tax  is  best  adapted  for  local 
purposes,  if  revenue  be  the  object  sought.  Fiscally,  both 
the  German  "Zuwachssteuer"  and  the  English  increment 
duties  were  found  to  be  disappointing.  Moreover,  these 
indirect  levies  are  the  forms  of  the  tax  better  suited  for 
state  and  federal  purposes.  In  this  country,  however,  the 
conditions  of  landed  monopoly  are  lacking  which  made 
progressive  and  increment  taxes  expedient  in  the  other 
countries  studied.  Only  with  regard  to  forest  taxation 
can  the  value-increment  tax  be  considered  for  American 
conditions.  Here  too,  however,  conservation,  rather  than 
fiscal  expediency,  is  the  purpose  to  be  held  in  view.  On 
the  other  hand,  to  levy  a  proportional,  direct  tax  on  land 
value  for  federal  or  state  purposes  would  be  impracticable; 
it  would  be  not  only  superfluous,  but  also  against  the  recent 
tendency  toward  separation  of  the  sources  of  revenue.^ 
The  choice,  therefore,  lies  between  the  local  increment  and 
direct  forms  of  the  tax.  The  practicability  of  the  increment 
tax  for  our  municipalities  is  problematical.  First,  it  is 
more  discriminatory  and  less  productive,  i.e.,  it  is  less 
fiscal  in  character.  Secondly,  it  is  unprecedented  in 
method  of  assessment.  Thirdly,  its  administration  presents 
»  Infra,  §  6. 


* 


A, 


424 


THE  TAXATION  OF  LAND  VALUE 


serious  difficulties.^  The  adoption  of  the  tax,  if  at  all 
expedient,  should,  then,  be  for  local  purposes;  the  form  of 
levy,  the  direct,  proportional  tax,  such  as  we  found  it  in 
the  Australasian  and  Canadian  municipalities. 

With  the  inquiry  thus  limited,  let  us  test  the  expediency 
of  the  tax  on  land  value,  in  the  light  of  the  needs  of  the 
local  governments,  and  the  problems  centering  in  local 
taxation. 

§  2.  The  tendency  of  local  (including  county)  expendi- 
ture to  increase  is  evident  from  the  following  table:  — 

TABLE  SHOWING  THE  GROWTH  OF  TOTAL  AND  PER 
CAPITA  EXPENDITURE  BY  LOCAL  AUTHORITIES  IN 
THE  UNITED  STATES* 


Year 

Cities,  villages,  totimships, 
school  districts 

Counties,  cities,  villages, 
townships,  school  districts 

Expenditures 

Per  capita 

Expenditures 

Per  capita 

1870 

1880 

1890 

1902 

$328,244,520 
724,427,848 
780,941,558 

1,433,505,091 

$8.51 
14.44 
12.47 
18.24 

$575,810,060 

848,532,875 

1,025,989,603 

1,630,069,610 

$13.38 
16.91 
14.79 
20.74 

*  Adapted  from  table  in  State  and  Local  Taxation,  Second  Conference  (1908),  p.  519. 

The  enormous  increase  in  the  outlays  of  the  govern- 
ment in  some  of  the  largest  municipalities  in  the  coun- 
try is  seen  from  the  tables  on  the  opposite  page. 

In  comparing  the  per  capita  expenditures  in  1890 
and  1912  as  shown  in  the  table,  it  should  be  borne  in 
mind  that  the  data  for  1912  included  interest  on  loan 
investments,  and  that  there  may  be  further  discrepan- 
cies due  to  the  change  in  classification  by  the  Census 
Bureau. 

One  cause  of  the  need  for  additional  taxes  is  likewise  seen 


Cf.  infra,  footnote  p.  458, 


LAND-VALUE  TAX  IN  UNITED  STATES      425 
INCREASE  IN  EXPENDITURES  IN  LARGE  CITIES,  1900-1910  • 


City 

1900 

1910 

Percentage  of 
increaae 

New  York 

$185,881,409 

30,141,134 

30,625.246 

28,959,312 

8,953,106 

6,967,419 

1.068,544 

$513,225,5551 
50,878,547 
47,750,049 
33,237,816  t 
16,322,348 
18,014,574 
4,644.659 

176 

68 

Philadelphia 

Boston  

55 
14 

St.  Louis 

82 

Buffalo     

158 

Atlanta! 

334 

•  Data  taken  from  comptrollers'  reports  of  these  cities, 
t  Figure*  are  for  1911,  not  for  1910. 

j  The  expenditures  include  both  ordinary  and  extraordinary.   The  figures  were  taken 
from  BoHon  Municipal  Slatislics  (Special  Publications). 
i  Figures  are  for  1901  and  1911. 

in  the  increased  indebtedness  which  the  municipalities  tend 
to  assume.  From  over  27  millions  in  1842,  the  indebted- 
ness of  the  municipalities  in  the  United  States  had  grown 
to  over  328  millions  in  1870,  to  nearly  707  millions  in  1880, 
to  over  744  millions  in  1890,  and  to  over  1387  millions 
in  1902.^  This  enormous  increase  does  not  imply  that  the 
debts  are  assumed  in  lieu  of  taxation;  but  it  results  that  the 

COMPARISON  OF  PER  CAPITA   EXPENDITURES   IN 
CERTAIN  LARGE  CITIES,  1890-1912* 


Per  capita 

New 
York 

Chicago 

Phila- 
delphia 

St. 
Louis 

Boston 

PiUs- 
burgh 

San 
Fran- 
cisco 

At- 
lanta 

1890:  Expendi- 
tures except 
for  loans  and 
investments.  . . 

1912:  Net  gov- 
ernmental cost 
payments 

$24.56 
46.29 

$13.80 
29.30 

$13.10 
26.49 

$14.45 
30.21 

$32.63 
43.39 

$12.04 
40.66 

$18.86 
43.34 

$15.75 
21.35 

•  Extra  Census  Bulletin  No.  70,  United  State*  Cemu*  (1894);  Financial  Statistic*  of 
Cilie*  (1912),  p.  74. 

interest  on  these  enormous  amounts  must  be  met  by  taxa- 
tion, thus  adding  another  considerable  item  to  the  budget. 

^  United  Statet  Cermu  (Special  Report)  Wealth,  Debt  and  Taxation 
(1907).  p.  131. 


426 


THE  TAXATION  OF  LAND  VALUE 


The  socializing  tendencies  of  modem  communities,  more- 
over, give  assurance  of  the  permanence  in  the  trend  to- 
ward increasing  public  expenditure.  Unlike  the  growth  in 
the  outlays  of  the  federal  government,  due  largely  to  the 
army,  navy,  and  pension  expenditures,^  that  of  the  muni- 
cipalities is  attributable  to  the  developmental  needs  of 
government  rather  than  to  the  protective.  ^  The  congrega- 
tion of  population  in  cities  following  upon  the  so-called 
industrial  revolution,  and  the  other  changes  denoted  as 
progress,  have  made  social  problems  out  of  what,  less  than 
a  century  ago  and  to  this  day  in  certain  remote,  rural 
communities,  are  considered  matters  primarily  of  individ- 
ual concern,  e.g.,  the  education  of  the  young,  hygienic  con- 
ditions of  the  home  and  neighborhood,  etc.  The  depart- 
ments of  public  education,  health,  public  utilities,  public 
charities  and  recreation,  as  well  as  the  police  and  fire 
departments  demand  larger  appropriations.  The  following 
statistics  regarding  recreation  and  educational  expendi- 
tures in  certain  large  cities  are  worth  noting:  ' 


Expenditures  for  recreation 

Expenditure! for  education  and  lihrariet 

Citji 

1903 

1912 

Percent 

.    '4 
\ncrea*e 

1903 

191S 

Percent 
increase 

New  York... 

Chicago 

Philadelphia 

St.  Louis 

Boston 

$1,516,057 

1,046,799 

561,308 

160.280 

556,221 

$4,099,728 

2,828,816 

934,568 

391,555 

1,338,939 

170 
170 
66 
144 
140 

$22,923,375 
6,703,217 
4,522,054 
2.083,054 
3,868,378 

$35,903,197 
10.719,484 
6,444.380 
3,488.917 
5,296,073 

56 
50 
42 
67 
37 

*  Professor  Bullock  shows  that,  deducting  the  expenses  for  pensions 
and  army,  the  per  capita  expenses  of  the  nation  would  not  have  increased 
at  all  during  the  decade  1886-97.  Cf.  Political  Science  Quarterly,  vol. 
xviir,  p.  104. 

*  Terms  used  by  H.  C.  Adams  {Public  Finance)  to  differentiate  the 
functions  of  government  that  uplift  and  further  the  social  well-being  by 
promoting  education,  sanitation,  public  improvements,  and  public 
utilities,  from  the  protective  functions  which  serve  merely  to  defend  life 
and  property. 

*  Financial  Statistics  of  Cities  (1912),  Table  xn;  United  States  Census 
Report.  Bulletin  No.  J20  (1902-03),  Table  xxi. 


LAND-VALUE  TAX  IN  UNITED  STATES      427 

In  view  of  the  increasing  population  in  urban  centers 
and  the  simultaneously  increasing  value  of  property  and 
income,  the  above  percentages  of  increase  in  expenditure 
may  not  seem  extraordinary.  The  fact  is,  however,  that 
the  budgetary  requirements  outrun  not  only  the  growth  of 
population,  as  shown  by  the  higher  per  capita  expenditure, 
but  outrun  also  the  increase  in  the  assessed  value  of 
property.^  And  if  the  "social  service"  functions  of  govern- 
ment, as  it  now  appears,  continue  to  increase,  the  need  of 
more  sources  of  revenue  will  likewise  continue. 

§  3.  Further  to  emphasize  the  fiscal  needs  of  the  local 
governments,  to  which  our  inquiry  is  confined,  it  will  be  y\ 
necessary  merely  to  show  the  inadequacy  of  the  general 
property  tax  which  constitutes  the  prevailing  source  of 
local  revenue  in  this  country.  Legally  both  real  and  per- 
sonal property  are  taxable  and  both  are  assessable  at  their 
full  value.  The  impracticability  of  this  system,  which  at 
one  time  was  almost  universally  prevalent,  has  led  to  its 
abandonment  in  almost  all  countries.  And  now  this  country 
too  is  waking  up  to  the  realization  that  property  is  no 
suflBcient  test  of  the  taxpayer's  ability  to  contribute  to  the  ; 
support  of  government;  and  that  the  administrative 
difficulties  in  assessing  personalty  equitably  are  well-nigh 
insuperable.  2  So  glaring  are  the  inequalities  of  burden 
which  the  tax  occasions,  that  even  under  the  most  efficient 
tax  administrations  little  attempt  is  made  to  comply  with 
the  provision  of  the  law  in  assessing  personalty. 

The  effect  of  this  inefficient  system  of  taxation  has  been 

^  Cf.  Gephart,  "The  Growth  of  State  and  Local  Expenditure,"  in 
Second  Conference  of  the  International  Tax  Association  on  State  and  Local 
Taxation  (1908),  p.  624. 

*  There  are,  nevertheless,  a  few  advocates  of  the  general  property  tax 
who  believe  a  graded  property  tax,  with  a  low  rate  on  certain  kinds  of 
personalty  would  be  a  productive  source  of  revenue.  It  is  true  that,  as 
in  Baltimore  and  Pennsylvania,  a  low  rate  will  result  in  an  increased 
assessment  of  intangible  personalty.  It  is  in  vain  to  expect,  however,  that 
under  a  system  of  self-assessment,  which  is  alone  practicable,  an  equality 
of  burden  will  result. 


428  THE  TAXATION  OV  LAND  VALUE 

to  shift  the  mam  burden  to  real  property.  This  will  readily 
be  seen  from  the  fact  that,  taking  the  country  as  a  whole,  ^ 
in  1902,  the  assessed  value  of  real  estate  was  78  per  cent, 
of  personalty  only  22  per  cent.  In  the  city  of  New  York, 
personal  property  contributed  35  per  cent  of  the  taxes  in 
1865,  29  per  cent  in  1870,  15.5  per  cent  in  1899,  12.5 
per  cent  in  1903,  and  only  3.9  per  cent  in  1913.*  In  the 
State  of  Minnesota,  of  a  total  assessment  of  over  a  billion 
dollars,  84  per  cent  was  on  real  and  only  16  per  cent  was  on 
personal  property.' 

In  view  of  this  circumstance  it  is  interesting  to  inquire 
how  real  estate  can  support  this  heavy  burden,  and  why  a 
tax  on  realty  arouses  less  complaint  from  the  proprietors 
than  an  equivalent  tax  on  income,  for  example.*  Unques- 
tionably, the  explanation  lies  in  the  facts  that  the  value  of 
land  tends  to  appreciate  with  the  increase  in  the  budget 
demands,  that  the  tax  is  capitalized  and  largely  amortized, 
and  that  the  value  of  the  property  is  generally  under- 
assessed. However  necessary,  therefore,  fiscal  authorities 
may  deem  it  to  supplement  the  realty  tax  by  other  im- 
posts,^ the  relief  of  the  landowner  from  a  heavy  burden  is 
not  a  justifiable  ground  for  such  action. 

§  4.  A  further  cause  of  disapproval  of  the  general 
property  tax  is  the  failure  to  assess  real  property  at  its  full 

1  United  States  Census  (Special  Report),  Wealth,  Debt  and  Taxation 
(1907).  Table  viii. 

2  Report  of  tfie  Commissioner  of  Taxes  and  Assessment  of  the  City  of 
New  York  (1913),  pp.  90-91.  Also,  Purdy,  Taxation  of  Personal  Property, 
p.  9. 

•  Minnesota  Tax  Commission,  Third  Biennial  Report  (1912),  p.  175. 

*  It  must  be  remembered  that  a  two  per  cent  tax  on  selling  value  is 
equivalent  to  a  thirty  to  forty  per  cent  tax  on  the  income,  depending  on 
the  rate  of  interest.  Where  the  land  is  undervalued,  of  course  the  tax  is 
less  heavy.  Complaints  of  this  burdensome  impost  are  voiced  chiefly  in 
rural  and  village  communities  where  land  does  not  rise  in  value  so  rapidly, 
if  at  all. 

'  It  is  undoubtedly  desirable  that  more  than  one  class,  that  every 
individual  in  fact,  should  contribute  something  toward  the  public 
budget.  Hence  other  taxes  should  supplement  the  realty  tax. 


LAND-VALUE  TAX  IN  UNITED  STATES      429 

value.  In  only  seven  commonwealths,  Arizona,  the  District 
of  Columbia,  Illinois,  Iowa,  Kentucky,  New  Hampshire, 
and  Vermont,^  does  the  law  provide  for  assessment  at  less 
than  the  actual  value.  In  all  the  other  states,  with  the 
possible  exception  of  certain  cities  in  Massachusetts  and 
New  York  City,  underassessment  is  the  rule  in  spite  of  the 
legal  requirement.  "The  habit  of  undervaluation  is  one  of 
such  long  standing  that  in  most  assessment  districts  sets 
or  series  of  arbitrary  valuations  jof  assessment  'purposes 
have  become  established.  ...  As  the  years  go  by  and  the 
assessor  continues  in  office  a  local  system  of  assessment  is 
developed  that  is  more  or  less  satisfactory  to  people  who 
give  the  matter  any  attention,  in  that  they  are  assessed  on 
a  minimum  basis.  The  assessment  thus  made  is  usually 
copied  from  year  to  year  and  the  injustices  and  inequalities 
therein  existent  are  perpetuated."  * 

Underassessment  in  itself  is  not  a  serious  evil.  If  the 
assessed  value  is  thereby  less,  the  rate  will  be  higher;  the 
burden,  however,  will  not  be  greater.  But  the  defect  in  the 
property  tax  is  the  failure  of  uniformity  of  assessment  as 
between  individual  owners,  between  district  and  district, 
between  rural  and  city  property,  between  county  and 
county.  Such  inequality  in  valuation  causes  one  individ- 
ual and  one  section  to  profit  at  the  expense  of  another 
individual  and  another  section.  For  example,  a  congres- 
sional report  on  the  system  of  assessment  in  the  District 

*  Arizona  may  assess  property  at  seventy  per  cent  for  city  purposes; 
the  District  of  Columbia,  at  two- thirds  of  appraised  value;  Illinois,  at  one- 
fifth  on  all  property  (since  changed  to  one-third);  Iowa,  at  twenty-five 
per  cent;  Kentucky,  at  seventy  per  cent;  New  Hampshire,  at  fifty  cents 
on  $100;  while  Vermont  is  authorized  to  assess  each  $100  at  $1.  See 
United  States  Census  (Special  Report),  Wealth,  Debt  and  Taxation  (1907), 
p.  628.  To  these  states  Minnesota  must  now  be  added.  In  1912,  the  full 
value  assessment  was  relaxed,  so  that  property  subject  to  the  general 
property  tax  is  assessed  at  forty  per  cent,  while  other  classes  of  property 
are  assessed  at  varying  percentages.  Taxation  and  Reventie  Systems  of 
State  and  Local  Governments  (1912),  p.  124. 

*  First  Biennial  Report  of  the  Minnesota  Tax  Commission  (1908), 
pp.  6,  8. 


4S0  THE  TAXATION  OF  LAND  VALUE 

of  Columbia  declares  that  areas  occupied  by  small  homes 
were  assessed  at  sixty  per  cent  of  their  true  value,  middle- 
class  houses  at  fifty  per  cent,  fine  residences  at  thirty  per 
cent,  and  suburban  areas  at  twenty  per  cent  of  their 
value.  ^  Again,  in  the  United  States  there  are  many 
counties  in  which  city  and  non-agricultural  land  (that 
is,  suburban  land  not  platted,  nor  laid  out  in  lots)  is  as- 
sessed at  a  higher  rate  than  farm  property,  and  about  as 
many  more  counties  in  which  the  assessment  on  farm 
property  ^  is  at  a  higher  percentage  of  value  than  on  urban 
realty. 

While  this  undervaluation  may  be  accounted  a  matter 
merely  of  administrative  ineflBciency,  there  is  a  more 
fundamental  reason  for  its  existence.  So  long  as  the  assess- 
ment is  the  basis  for  a  state  or  coimty  levy  as  well  as  for 
municipal  purposes,  there  will  be  a  tendency  for  the  local 
assessor  responsible  to  the  local  body  to  underestimate  the 
value  of  property  in  his  district.  "The  departure  from  the 
full  value  probably  has  its  origin  in  an  effort  to  place  valua- 
tions low  enough  to  protect  tax  payers  from  paying  more 
than  a  just  proportion  of  taxes  levied  by  the  higher  politi- 
cal organizations.  When  the  departure  is  once  made  from 
the  full  value,  the  tendency  is  constantly  downward,  for 
the  reason  that  the  district  assessments  being  made  in- 
dependently of  each  other,  the  districts  which  are  assessed 
at  a  higher  ratio  of  the  true  value  than  the  average  will  be 
forced  in  the  next  assessment  to  a  lower  valuation  in  self- 
protection.  In  cases  of  rapid  changes  in  value  —  either 
advancing  by  reason  of  increase  in  population  or  business, 
or  decreasing  from  any  cause  —  the  assessors  will  naturally 
try  to  protect  the  interests  of  their  constituents  by  quickly 
recognizing  any  decrease  in  value,  and  by  being  correspond- 

*  Report  on  Assessment  and  Taxation  of  Real  Estate  in  the  District  of 
Columbia  (1912,  House,  No.  1215),  p.  5. 

*  United  States  Censxis  (Special  Report),  Wealth,  Debt  and  Taxation 
(1907),  p.  6. 


LAND-VALUE  TAX  IN  UNITED  STATES      431 

ingly  slow  in  recognizing  an  increase,  and  thus  accelerate 
the  downward  tendency."  ^ 

As  for  the  inefficiency  and  incompetency  of  the  assessor, 
the  fault  lies  with  the  present  system  under  which,  as  an 
elective  official,  the  assessor  becomes  responsible  to  a  local 
constituency,  and  under  which,  too,  the  remuneration  is 
often  insufficient  to  enable  him  to  devote  all  his  time  to  his 
office.  Until  expert,  civil  service  employees  are  engaged 
to  make  the  valuation,  arbitrary  guesswork,  not  scientific 
accuracy,  will  continue  to  be  the  basis  of  realty  assessment 
in  this  country. 

§  5.  With  regard  both  to  the  need  for  more  revenue  and 
to  the  defects  of  the  general  property  tax,  there  is  general 
agreement  among  fiscal  authorities.  It  is  also  generally 
admitted  that  the  first  step  toward  reform  is  to  amend  the 
state  constitutions  so  as  to  make  changes  in  the  tax  system 
possible.  Flexibility  in  legislative  powers,  in  view  of  the 
evolution  of  social  institutions,  is  essential;  it  is  most 
essential,  too,  in  that  very  important  function  of  govern- 
ment, the  taxing  power.  Yet  there  are  only  three  states 
(excluding  the  District  of  Columbia),  Connecticut,  New 
York,  and  Rhode  Island,  that  have  no  constitutional 
restrictions  upon  the  taxing  power.'*  In  all  but  thirteen 
states  restrictions,  more  or  less  far-reaching,  obstruct 
reform  in  taxation. 

To  aboUsh  the  "uniform  ad  valorem  system,"  the  taxa- 
tion of  all  kinds  of  property  at  the  same  rate,  amendments 
to  the  constitution  are  still  required  in  most  of  the  states.^ 

^  Somers,  The  Valuation  of  Real  Estate  for  the  Purpose  of  Taxation, 
pp.  3-4. 

*  Cf.  Proceedings  of  the  Third  International  Conference  on  State  and  Local 
Taxation  (1909),  p.  73. 

*  In  spite  of  the  difficulty  of  passing  a  constitutional  amendment,  about 
a  dozen  states  have  succeeded  in  so  doing  and  more  are  ready  to  follow 
their  example.  The  constitutions  of  Arizona  and  New  Mexico  now  permit 
of  classification,  while  those  of  New  Jersey,  Vermont,  Maryland,  and 
Iowa  never  prevented  the  classification  of  property.  In  Pennsylvania, 
Idaho,   Delaware,   Virginia,   Minnesota,   Oklahoma,   Iowa,   Michigan, 


482  THE  TAXATION  OF  LAND  VALUE 

The  nature  of  the  amendment  can  be  seen  from  the  pro- 
vision in  the  Minnesota  constitution  (1906)  that  "taxes 
shall  be  uniform  upon  the  same  class  of  subjects."  ^  A 
system  of  classification  of  property  with  varying  rates  for 
each  class  is  thus  made  possible. 

With  this  obstruction  to  legislation  removed,  some  of  the 
states  have  instituted  changes  in  taxing  personalty  that  are 
productive  of  more  revenue  and  distribute  the  burden 
upon  a  larger  proportion  of  the  people.  Thus,  for  example, 
in  Maryland,  Pennsylvania  and  West  Virginia,  a  mere 
reduction  in  rate  on  certain  forms  of  intangible  property 
has  resulted  in  a  larger  return  of  personalty  for  taxation 
than  ever  before.  Other  states,  after  classsifying  the 
different  subjects  included  under  personalty,  have  adopted 
special  taxes  for  each  class.  Thus,  mortgages,  bonds  and 
other  forms  of  credit  may  now  be  subject  to  a  recording  or 
registration  tax  payable  once,  that  is,  when  the  deed  or 
bond  is  recorded.  In  New  York  state  the  taxpayer  is  not 
even  required  to  make  a  return  of  his  personal  property.^ 
Yet,  through  a  system  of  classification  of  personalty,  the 
assessment  of  intangibles  has  increased.' 

But  even  these  special  taxes  have  little  to  recommend 
them,  except  that  they  are  more  practicable  and  less  burden- 
some than  the  old  system  of  taxing  personal  property.  As 
for  an  equitable  distribution  of  burden  among  the  tax- 
payers, objections  may  well  be  raised  against  these  special 
taxes,  first,  because  the  taxation  of  mortgages  and  bonds 
generally  involve  double  taxation,  and  secondly,  because  all 
the  personal  property  cannot  be  reached  even  when  the 
rate  of  tax  is  slight.    While,  therefore,  many  to  whom 

New  Hampshire,  New  York,  and  Wisconsin  the  ad  valorem  principle  has 
been  amended.  Ibid.  (1909),  p.  73:  (1911),  pp.  56-58. 

1  United  States  Census  Report,  Taxation  and  Revenue  Systems  of  State 
and  Local  Goternments  (1912),  p.  120. 

»  Ibid.,  p.  162. 

*  See  Report  of  Commissioners  of  Taxes  ...  in  Neva  York  City  (1913), 
pp.  11, 102. 


LAND-VALUE  TAX  IN  UNITED  STATES      433 

expediency  is  all-sufficient  favor  this  change  in  method  of 
assessment,  there  are  others  who  would  prefer  to  see 
certain  forms  of  intangible  property  exempt  altogether, 
and  other  systems  of  taxation  supersede  the  antiquated 
general  property  levy.  For  the  latter,  then,  classification  of 
property  for  purposes  of  taxation,  although  admittedly  an 
improvement,  is  not  an  adequate  reform. 

The  substitution  of  other  taxes  for  the  personal  property 
tax  would  necessitate  further  amendment  of  the  state  con- 
stitutions. Wisconsin  has  successfully  substituted  an  in- 
come tax,^  while  in  Canada,  where  the  municipalities  have 
greater  freedom  of  action  in  budgetary  matters,  business 
and  habitation  as  well  as  income  taxes  have  largely  re- 
placed the  old  general  property  tax.  Without  entering  into 
the  relative  merits  and  defects  of  these  imposts,  it  will  be 
generally  admitted  that  each  one  could  be  made  not  only 
more  productive,  but  also  more  widely  distributed  than 
the  personal  property  tax.  But  like  the  modified  per- 
sonalty taxes  discussed  above,^  the  income  tax  could  still 
be  evaded,  while  the  habitation,  license,  or  business  taxes 
would  fail  to  distribute  the  burden  equally  and  equitably.' 

§  6.  Aside  from  the  legal  and  economic  difficulties  in  the 
way  of  the  elimination  of  the  personal  property  tax  in  the 
manner  indicated  above,  there  is  evident  in  this  country  a 
trend  of  tax  policy  which  may  make  a  state  income,  habita- 
tion, or  business  tax  together  with  the  personalty  tax, 
unnecessary.  This  tendency  is  toward  the  separation  of 
the  state  from  the  local  sources  of  taxation.  Already  in 
ten  states,  California,  Connecticut,  Delaware,  New  Jersey, 
New  York,  Ohio,  Vermont,  Pennsylvania,  Wisconsin,  and 
West  Virginia,  the  separation  is  more  or  less  complete.*  In 

^  See  Fourth  International  Conference  on  State  and  Local  Taxation 
(1910),  pp.  87/.,  also  Census  Report,  op.  cit.,  p.  261. 

'  See  supra,  p.  432. 

'  Cf.  Fourth  International  Conference  on  State  and  Local  Taxation 
(1910),  pp.  89,  90. 

*  In  some  of  these  states,  as  in  New  Jersey,  subsidiary  levies,  as  for 


484  THE  TAXATION  OF  LAND  VALUE 

others,  the  dependence  of  the  state  upon  the  general  prop- 
erty tax  is  growing  less.^  An  analysis  of  the  sources  of 
income  for  state  purposes,  moreover,  confirms  belief  in 
the  continuance  and  further  development  of  this  practice. 

These  sources  are  public  utility  and  other  corporations, 
inheritances,  insurance  companies,  banks,  express  com- 
panies, while  some  states  derive  large  sums  of  revenue  from 
licenses,  especially  liquor  licenses,  from  mortgages,  bonds, 
notes  and  other  secured  debts,  and  also  from  fees  of  various 
kinds.  The  success  of  the  levies  on  public  utilities,  corpora- 
tions and  on  inheritances,  and  the  recent  unfriendly  atti- 
tude towards  monopolies  and  large  fortunes,  especially 
expressing  itself  in  the  improved  methods  of  assessment, 
will  tend  to  make  these  sources  of  income  more  and  more 
productive.  Thus  the  separation  of  state  from  local  taxa- 
tion will  be  furthered. 

What  will  be  the  effects  of  this  policy?  First,  according 
to  niany,^  separation  presents  the  best  remedy  for  the 
underassessment  of  realty.^  This  we  saw  *  was  one  of  the 
defects  of  the  present  system  of  taxation.  Secondly,  it  will 
facilitate  local  option  in  taxation.  At  first  sight  the  rela- 
tion between  separation  of  sources  for  state  and  local 
revenue  and  local  option  seems  remote.  But  when  once  the 

schools,  are  the  only  taxes  on  general  property.  In  Pennsylvania  vehicles 
and  intangibles  only  are  taxed  for  state  purposes.  In  California  and 
Delaware  the  separation  is  complete.  Cf.  Census  Report,  Taxation  and 
Revenue  Systems  of  State  and  Local  Governments  (1912). 

^  For  example,  Massachusetts,  Oregon,  and  Minnesota  derive  a  con- 
siderable proportion  of  their  revenue  from  other  sources.  Cf.  Ibid.;  also 
Fifth  Conference  on  State  and  Local  Taxation  (1911),  p.  238. 

*  There  are  those  who  still  hold  that  cooperation  between  state  and 
local  authorities  in  assessment  will  solve  the  evil  of  underassessment. 
Cf.  Second  Conference  on  State  and  Local  Taxation  (1908),  pp.  113^. 

*  Another  practicable  remedy  is  the  apportionment-by-expenditure 
system.  In  1901  this  principle  was  embodied  in  an  Act  passed  in  Oregon, 
but  the  reform  was  never  put  in  practice,  largely  because  of  some  defec- 
tive features  in  the  Act.  Cf.  ibid.  (1911),  pp.  iSTff.;  also  Purdy,  Local 
Option  in  Taxation,  p.  32. 

*  Supra,  §  4. 


LAND-VALUE  TAX  IN  UNITED  STATES      435 

general  property  tax  is  relegated  by  the  state  to  the  local 
authorities,  the  interest  of  the  state  in  the  local  assess- 
ments would  diminish  and  there  would  therefore  be  less 
incentive  to  oppose  local  option  when  the  latter  is  de- 
manded by  the  municipalities. 

The  problem  of  "home  rule"  in  taxation  is  a  serious 
and  vital  one  just  now,  first,  because  of  the  strong  division 
it  has  created  among  fiscal  authorities,  and  secondly, 
because  of  the  far-reaching  changes  it  may  effect  in  taxa- 
tion. That  the  municipalities  desire  local  option  in  taxa- 
tion is  in  harmony  with  democratic  government;  it  is  of  a 
piece  with  the  general  movement  of  cities  to  govern  their 
own  affairs.^  And  as  was  admitted  in  part  by  an  opponent 
of  local  option,^  cities  like  New  York,  Chicago,  Phila- 
delphia, etc.,  are  commonwealths  in  themselves  and  may 
well  be  left,  within  hmits,  to  govern  themselves.  The 
special  importance  of  freedom  in  taxation,  furthermore, 
grows  out  of  the  constitutional  restrictions  and  the  con- 
servatism of  the  legislature.  To  await  reform  in  taxation 
through  the  slow  legislative  procedure  is  in  many  states 
hopeless.  Hence  the  demand  for  the  initiative  and  referen- 
dum and  for  local  autonomy,  or  local  option.  The  conse- 
quences of  this  policy  will  be  treated  in  the  following 
section. 

§  7.  Local  option,  it  must  be  remembered,  is  but  a 
means  for  overcoming  the  inflexible  framework  of  our 
state  and  federal  government,  and  the  political  interests 
which  thwart  reform.  It  is,  furthermore,  a  method  of 
adapting  the  laws  to  the  prevailing  variety  of  conditions. 
Yet,  although  local  autonomy  sounds  consistent  with  the 
ideal  of  democracy,  it  has,  just  as  too  much  liberty  has, 
great  dangers.  The  history  of  the  struggle  in  this  country 

*  The  agitation  in  Chicago  to  be  given  power  to  control  the  public 
utilities  corporations,  etc.,  is  an  illustration  of  the  same  movement. 

*  Professor  T.  S.  Adams  in  Fourth  Oonjerence  on  State  and  Local  Taxa* 
Hon,  p.  107  (footnote). 


436  THE  TAXATION  OF  LAND  VALUE 

between  state  rights  and  centralization,  and  of  the  victory 
of  the  latter  is  sufficient  vindication  of  concentration  of 
authority.  But  as  shown  in  our  history  there  are  limits  to 
this  policy.  Legislation  that  is  state-wide,  for  example,  is 
apt  to  be  more  effective;  nevertheless,  in  matters  purely 
local  this  rule  has  no  force.  And  most  large  cities  that  are 
without  a  liberal  charter  are  often  hampered  in  their  de- 
velopment through  the  indifference,  ignorance,  and  self- 
interest  of  legislators  from  remote  sections  of  the  state. 

Admitting  the  desirabiUty  of  local  autonomy  in  certain 
matters,  it  may,  nevertheless,  be  asked  whether  taxation  is 
a  fit  subject  for  local  control.  Surely  not,  when  the  state  is 
dependent  upon  the  same  sources  of  revenue;  nor  even  if  the 
revenues  were  all  for  local  purposes,  would  full  power  in 
taxation  be  justified.  We  need  only  to  call  attention  to  the 
evils  growing  out  of  the  lack  of  uniformity  among  the 
states  under  our  present  system  and  to  the  recent  proposals 
of  inter-state  comity,  to  reject  the  principle  of  local 
autonomy  in  taxation.  Moreover,  because  of  the  far- 
reaching  influences  of  taxation,  and  the  general  spirit  of 
rivalry  which  prevails  among  the  local  bodies,  it  would  be 
dangerous,  it  is  held,  to  delegate  to  them  full  control  of  the 
tax  system.  The  power  to  exempt  and  discriminate  against 
certain  classes  of  taxable  objects  might  be  employed  by 
the  towns  to  attract  industries  away  from  other  locaUties, 
for  example.  The  business  chaos  that  might  be  expected  to 
ensue  from  such  policies  may  well  be  imagined. 

Local  option,  however,  does  not  imply  complete  auton- 
omy. To  argue  against  the  latter  in  opposing  "local 
option"  is  willfully  to  evade  the  issue. ^  The  legislature  is 

^  Professor  Bullock  points  out  the  inconsistency  of  the  Oregon  refer- 
endum for  local  option  in  taxation,  to  which  was  attached  the  provision 
that  no  poll  tax  should  be  levied  in  Oregon.  If  the  position  of  the  present 
writer  is  correct  there  is  no  inconsistency  at  all.  What  the  people  of 
Oregon  voted  for  was  to  empower  the  municipalities  to  exempt  certain 
kinds  of  property  if  they  chose,  at  the  same  time  that  they  were  held 
subject  to  other  general  state  laws.  See,  Fifth  Conference  on  State  and 
Local  Taxation  (1911),  p.  287. 


LAND-VALUE  TAX  IN  UNITED  STATES      437 

always  well  aware  of,  and  the  Act  always  specifies  the 
particular  question,  in  this  case,  the  particular  tax  or 
subject  in  taxation  which  the  municipahty  may  adopt  or 
reject.  So  with  the  local  option  provisions  in  New  Zealand 
and  in  Canada.^  The  employment  of  local  option  is  to  give 
the  municipalities  a  choice  of  action,  and  often  the  power 
to  rescind  this  action  goes  with  it.  In  this  way  local  condi- 
tions are  taken  into  account.  Both  in  New  Zealand  and  in 
western  Canada  a  two-thirds  vote  is  generally  required  to 
carry  a  petition  on  a  local  option  measure.  The  important 
fact  to  notice,  however,  is  that  the  legislature,  moved  by  a 
strong  public  opinion  that  a  certain  measure  is  desirable, 
yields  to  what  appears  a  harmless  compromise.  And  this 
concession  will  be  all  the  more  readily  made  as  the  separa- 
tion of  state  from  local  taxation  becomes  complete. 

Where,  then,  lies  the  danger  in  local  option,  which  has 
called  forth  such  great  opposition  on  the  part  of  fiscal 
authorities ?2  It  is  alleged  to  be  the  shortest  route  to  the 
Single  Tax.  Few  would  regret  the  abolition  of  the  personal 
property  tax  by  the  municipal  bodies.  But,  if  given  the 
power  to  exempt  personal  property,  what  if  the  munici- 
pality should  demand  the  power  to  exempt  improvements 
and  to  abolish  all  other  taxes  than  the  tax  on  realty? 
Whether  this  fear  is  well  founded  and  justified  will  appear 
from  a  review  of  recent  events. 

There  is  unmistakably  a  movement  in  certain  of  our 
states  to  seek  local  option  in  taxation.  It  accompanies  the 
propaganda  for  the  initiative  and  referendum.  The  curious 
thing,  however,  is  that  these  radical  propositions  encounter 
less  opposition  from  the  state  legislatures  than  from  the 
people  themselves.    For  example,  the  California  amend- 

*  For  example,  in  British  Columbia  the  Municipal  Act  (Statutes,  1892, 
sec.  148)  granted  power  to  municipalities  to  pass  by-laws  for  assessing 
improvements  not  in  excess  of  fifty  per  cent  of  their  actual  cash  value,  or 
to  exempt  all  improvements  from  taxation. 

«  Cf.  Conferences  on  State  and  Local  Taxation  (1907),  pp.  515/.;  (1911), 
pp.  271Jf. 


438  THE  TAXATION  OF  LAND  VALUE 

ment  empowering  "any  county,  city  and  county,  city  or 
town  to  exempt  from  taxation  for  local  purposes  in  whole 
or  in  part,  any  one  or  more  of  the  following  classes  of 
property,"^  etc.,  passed  both  houses  of  the  legislature  in 
1912  only  to  be  defeated  by  the  popular  vote  in  November, 
1914.  In  Oregon,  it  is  said,  the  local  option  amendment  to 
the  constitution  was  adopted  ^  in  1910  chiefly  because  of 
the  provision  for  the  abolition  of  the  poll  tax.'  The  meas- 
ure accomplished  nothing,  since  the  power  to  regulate 
taxation  and  exemptions,  according  to  the  amendment, 
was  "subject  to  any  general  law  which  may  be  hereafter 
enacted."  But  this  amendment  was  subsequently  repealed, 
with  the  exception  of  the  clause  prohibiting  the  levy  of  a 
poll  tax.*  The  conservatism  of  the  general  public  is  further 
evidenced  by  the  defeat  in  three  counties  of  Oregon, 
Clackamas,  Multnomah  and  Coos,  of  a  proposal  of  the 
Graduated  Specific  Tax  Exemption  League  (a  Single  Tax 
body)  to  levy  a  graduated  supertax  on  land  value  exceed- 
ing $10,000  in  a  single  holding.  Another  proposal  for  the 
adoption  of  the  Single  Tax  for  local  purposes  also  met 
defeat.^  At  the  same  time,  the  following  amendment  to  the 
Wisconsin  constitution  was  passed  in  1913  by  both  houses 
of  the  legislature:^  "The  legislature  shall  have  power  to 

*  These  classes  were:  improvements  in,  on,  and  over  land;  shipping; 
household  furniture;  live-stock;  merchandise;  machinery;  tools,  farming 
implements;  vehicles;  other  personal  property  except  franchises.  See 
The  Public,  May  23,  1913,  p.  492;  also  New  York  Tax  Reform  Associa- 
tion, pamphlet  No.  552  (1914). 

'  Sixth  Annual  Conference  on  State  and  Local  Taxation  (1912),  pp.  47- 
48;  (1911),  pp.  245  ff.  The  vote  stood  44,171  for,  and  42,127  against, 
with  33,950  not  votmg.  {Ibid.,  p.  248.) 

»  Ibid.,  p.  249. 

*  Art.  IX,  §  la.  See  Census  Report,  Taxation  and  Revenue  Systems 
(1912),  p.  191. 

»  Cf.  The  Public,  October  25,  1912,  p.  1010;  December  11,  1914. 
p.  1184. 

*  To  become  a  part  of  the  constitution,  this  proposed  amendment  had  to 
be  readopted  by  the  next  legislature  before  it  could  be  put  to  a  popular  vote. 
Cf.  ibid..  May  30,  1913.  In  view  of  the  recent  defeat  of  the  progressive 


LAND-VALUE  TAX  IN  UNITED  STATES      439 

authorize  counties,  towns,  cities  and  villages,  by  a  vote  of 
the  electors  therein,  to  exempt  from  taxation,  in  whole  or  in 
part,  designated  classes  of  property,  including  the  build- 
ings and  improvements  on  land,  but  not  the  land  itself; 
but  the  value  of  such  exempt  property  shall  be  included  in 
the  assessment  and  equalization  for  State  and  county 
taxes."  Nothing  more  has  been  done  with  it,  however. 

This  evidence  of  recent  legislation  would  tend  to  in- 
dicate that  there  is  not  much  reason  to  fear  the  popular 
judgment  of  the  American  people  even  in  matters  of  taxa- 
tion. Indeed,  that  the  initiative  petitions  for  local  option 
have  aroused  the  interest  and  general  intelligence  of  the 
people  in  one  of  the  most  important  of  civic  questions  has 
in  itself  been  a  most  wholesome  influence.^  In  view  of  the 
present  defective  system  of  taxation  and  the  many  dif- 
ficulties under  which  our  society  is  laboring  to  improve  the 
system,  there  is  to  many  no  more  hopeful  outlook  than  this 
movement  toward  "restricted"  local  option  in  taxation.^ 

§  8.  Whatever  direction  reform  in  local  taxation  may 
take  in  this  country,  it  may  be  confidently  assumed  that 
real  estate  will  continue  to  constitute  the  most  substantial 
source  of  revenue.  The  first  and  most  essential  step,  there- 
fore, must  be  to  eliminate  the  defects  in  that  system  of 

party  in  Wisconsin  (November,  1914)  there  is  little  hope  for  the  adoption 
of  the  amendment. 

*  See  Fifth  Conference  on  State  and  Local  Taxation  (1911),  p.  251. 

*  It  is  significant  that  the  opposition  to  "home  rule"  in  taxation  has 
been  awakened  by  the  attempts  of  the  Single  Taxers  to  use  local  op- 
tion as  a  means  to  submit  their  doctrines  to  a  popular  vote.  In  1907, 
the  National  Tax  Association  adopted  without  much  opposition  the 
following  resolution:  "That  state  and  local  systems  should  be  so  far 
divorced  that  by  general  laws  the  appropriate  local  governing  bodies  may, 
if  deemed  expedient,  be  granted  certain  limited  and  carefully  prescribed 
powers  over  the  licensing  of  occupations  and  the  selection  of  subjects  of 
local  taxation  and  the  rate  of  assessment  upon  such  subjects."  At  the 
fifth  conference  of  the  Association,  in  1911,  on  account  of  the  diversity  of 
opinion  among  the  members  that  had  arisen  since  1907  on  the  question  of 
local  option,  the  above-quoted  resolution  was  withdrawn.  Cf.  Proceeding* 
of  the  Fifth  National  Conference  (1911),  pp.  4SJ5  jf. 


440  THE  TAXATION  OF  LAND  VALUE 

taxation,  which  are  chiefly  administrative.  The  importance 
of  a  more  eJBBcient  system  of  valuation  and  assessment  can 
scarcely  be  exaggerated,  since  it  would  not  only  tend  to 
equalize  the  burden  of  taxation,  but  would,  in  a  great 
measure,  make  special  and  additional  taxes  in  our  localities 
unnecessary.  Moreover,  any  proposed  new  tax  will  pre- 
suppose a  more  expert  method  of  administration  than  at 
present  employed. 

Already  a  number  of  American  municipalities  have  taken 
action  to  improve  the  administration  of  the  realty  tax. 
The  movement  in  general  is  toward  expert  valuation  of 
property,  toward  full-value  assessment,  and  toward  an- 
nual revaluation.  What  is  meant  by  an  expert,  scientific 
method  of  appraising  real  property  has  already  been 
described.^  The  first  requirement  for  a  fairly  accurate 
system  of  valuation  is  the  separation  of  the  value  of  the 
land  from  that  of  the  improvements;  the  second  is  the 
employment  of  maps  and  rules  for  relative  values;  the 
third,  good  administrative  machinery,  trained  valuers 
holding  office  by  civil  service  appointment  and  responsible 
to  a  head  taxing  authority. 

The  progress  already  made  in  this  country  toward  such 
scientific  valuation  is  a  strong  argument  against  the  half- 
way schemes  to  patch  up  the  assessment  roll  which  are 
advocated  in  some  states.  The  recent  attempts  by  the 
Tax  Commissions  of  Wisconsin  and  Michigan  to  ascer- 
tain the  actual  value  of  real  property  by  a  comparison 
of  a  number  of  recorded  sales  with  the  assessed  value  of 
the  same  property  and  under  the  untenable  assumption 
that  the  same  discrepancy  that  existed  between  the  sale 
and  assessed  value  in  a  relatively  few  cases  will  apply  to 
all  property,  2  are  futile  and  inadequate  to  overcome  the 
flagrant  inequaUties  in  assessment.  Even  though  the 
assessed  value  of  real  property  has  by  this  method  risen 

*  Supra,  chapter  vii,  §§  13  Jf. 

*  Cf.  Second  Conference  on  State  and  Local  Taxation  (1908),  pp.  ISW/. 


LAND-VALUE  TAX  IN  UNITED  STATES      441 

enormously,  the  process  of  attempting  an  equalization 
of  the  admittedly  incompetent  original  assessment,  is 
scarcely  commendable.  And  added  to  this  fundamental 
defect  is  that  arising  from  the  fact  that  the  recorded 
values  are  often  nominal  and  fallacious  and  that  the 
number  of  sales  transactions  in  any  one  year  are  com- 
paratively few.  There  remains,  therefore,  no  doubt  that 
the  more  scientific  and  in  the  end  more  practicable  method 
of  valuation  is  that  endorsed  by  the  committee  of  the 
National  Tax  Association  on  Real  Estate  Assessment,  and 
practiced  in  New  York  City,  a  cadastral  valuation  based  on 
the  principles  already  set  forth. 

The  second  change  in  our  administrative  system,  namely, 
full-value  assessment,  will  automatically  result  from  an 
expert  valuation.  Whether  underassessment  is  legally 
required,^  or  is  the  outcome  of  a  defective  system,  it  is  to 
be  condemned.  Enough  reasons  have  already  been  given 
elsewhere  ^  in  favor  of  full-value  assessment.  We  repeat 
that  from  a  purely  business  standpoint  its  influence  is  most 
favorable,  since  underassessment,  even  when  uniform 
(which  is  contrary  to  experience),  means  a  higher  tax  rate.' 
Yet  a  low  rate  will  all  the  more  readily  attract  residents  and 
business  to  a  community. 

As  to  annual  assessments,  inasmuch  as  it  is  the  tendency 
of  land  to  fluctuate  and  especially  to  appreciate  in  value, 
the  valuation  must  be  frequent  enough  to  reflect  such 
fluctuations.  And  without  a  revaluation,  even  annual 
assessments  have  proven  ineffective.  Already  assessments 
are  made  annually  in  twenty-four  states  for  all  taxing 

*  As  in  Illinois  and  several  other  states. 

*  See  supra,  §  4. 

*  The  recent  reform  in  Ohio,  the  chief  feature  of  which  consisted  in 
adopting  full-value  assessment,  has  shown  the  value  of  the  change.  The 
maximum  rate  limit  for  all  local  purposes  in  Ohio  has  been  fixed  at  fifteen 
mills,  while  in  Chicago  for  practically  the  same  purposes  the  tax  rate  for 
1915  is  about  fifty  mills.  (In  Chicago,  however,  property  is  legally  assessed 
at  one-third  of  its  actual  value.) 


442  THE  TAXATOIN  OF  LAND  VALUE 

purposes,  and  in  seven  more  for  local  purposes  only,* 
thirty-one  states  in  all.  In  most  of  these  cases,  however, 
the  assessment  of  the  previous  year  with  or  without  changes 
is  readopted  for  the  current  year.  To  be  effective,  then, 
an  annual  revaluation  of  the  property  is  necessary. 

§  9.  The  need  of  administrative  reform  being  generally 
acknowledged,  the  more  disputed  question  presents  itself, 
as  to  what  new  sources  of  revenue  are  available  for  local 
purposes.  Speaking  generally,  local  tax  reform  tends  to 
take  one  or  more  of  three  forms :  (1)  the  classified  general 
property  tax,  or  (2)  the  realty  tax  supplemented  by  special 
taxes  on  business,  corporations,  and  possibly  income,  or 
(3)  the  realty  tax  relegated  exclusively  to  the  local  authori- 
ties. The  adoption  of  any  one  of  these  systems  will  require 
in  most  states  a  constitutional  amendment.  The  prefer- 
ence, then,  rests  on  the  basis  of  relative  expediency,  for 
opinion  is  divided  with  regard  to  the  relative  equity  of  the 
proposed  substitutes  for  the  general  property  tax.^ 

If  there  is  some  truth  in  the  adage,  "every  old  tax  is 
good,  every  new  one  bad,"  the  introduction  of  new  and 
untried  taxes  into  the  local  system  in  this  country  should 
and  probably  will  proceed  slowly.  The  conservative  tend- 
ency toward  reform  in  the  United  States  bears  out  this 
statement.  For  this  reason  the  course  of  reform  is  greatly 
in  favor  of  the  classified  property  tax  which  involves  only 
slight  innovation.  The  classified  property  tax,  moreover, 
is  preferred  to  the  separation  of  the  revenue  sources  of 
state  and  local  governments  respectively,  because  of  the 
far-reaching  consequences  which  the  latter  may  involve. 
Indeed,  the  opposition  against  separation  seems  to  be 
actuated  by  the  fact  that  it  will  lead  to  local  option,  local 
option  to  the  tax  on  land  value,  and  land- value  taxation  to 
the  Single  Tax.' 

1  United  States  Census  (Special  Report),  Wealth,  Debt,  and  Taxation 
(1907),  p.  627. 

*  See  supra,  §§  6,  6. 
•.  *  In  reference  to  the  experience  of  Pennsylvania  and  Maryland  (see 


LAND-VALUE  TAX  IN  UNITED  STATES      443 

Nevertheless,  the  expedient  of  dividing  the  revenue 
sources  between  the  state  and  local  governments  is  making 
progress.^  With  the  modern  movement  toward  the  levy  of 
specific  taxes  on  public  utility  and  other  corporations,  on 
inheritance,  insurance,  and  on  mines  for  state  purposes, 
the  separation  of  sources  will  grow  more  feasible.  ^  In  fact 
the  tendency  is  for  separation  to  follow  classification. 
Iowa  and  Virginia  exemplify  this  movement.  In  both  of 
these  states  classification  is  not  restricted  by  the  constitu- 
tion, and  departure  from  the  uniform  ad  valorem  property 
tax  has  been  tried.  In  1913,  an  amendment  passed  the 
legislature  of  Iowa,  providing  for  a  separation  of  the 
sources  of  revenue.'  In  Virginia  a  partial  ^  separation  was 
enacted  in  1915.  Another  noteworthy  enactment,  a  half- 
way measure,  perhaps,  between  classification  and  separa- 
tion, is  the  plan  adopted  by  Connecticut  of  apportioning 
the  state  direct  tax  against  the  towns  in  proportion  to 
their  revenue,  instead  of  proportionately  to  their  assessed 
valuation.^ 

The  replacing  of  the  personal  property  tax  in  our  local 
bodies  by  business  and  income  taxes,  as  has  been  the  devel- 

supra,  §  4)  with  the  classified  property  tax.  Professor  Bullock  asks:  "Is 
it  Dot  possible  that  these  commonwealths  have  found  a  practicable,  if  not 
an  ideal,  method  of  removing  the  worst  evils  in  American  state  and 
location  taxation?  "  See  Second  Conference  on  State  and  Local  Taxation 
(1908),  p.  137.  How  much  the  inevitable  movement  toward  local  option 
which  Professor  Bullock  desires  to  ward  off  is  responsible  for  the  senti- 
ment quoted  above  can  only  be  surmised. 
1  C/.  supra,  §  6. 

*  The  most  serious  objection  to  separation,  the  lack  of  elasticity  of 
the  state  system  of  taxation  (c/.  Seligman,  Essays  in  Taxation  (1913), 
pp.  S5Sf.),  has  not  interfered  with  the  method  in  Delaware,  for  example, 
where  it  is  of  long  standing. 

*  The  amendment  must  be  passed  again  in  1915,  before  it  can  be  sub- 
mitted to  the  people.  Cf.  New  York  Tax  Reform  Association,  pamphlet 
No.  647  (1913). 

*  Ibid.,  pamphlet  No.  560  (1915).  Partial  separation,  because  realty  is 
relegated  to  the  local  bodies  for  all  purposes,  except  for  the  school  tax 
rate  of  ten  cents  which  is  to  remain  a  state  levy. 

»  Ihid.  (1916).  Cf.  supra,  p.  434,  footnote  3.    , 


444  THE  TAXATION  OF  LAND  VALUE 

opment  in  Canada,  is  for  practical  reasons  remote.  The 
inexpediency  of  the  business  tax  for  large  cities  lies  funda- 
mentally in  the  diflSculty  of  finding  a  measure  of  even 
relative  uniformity  to  ensure  equality  of  burden.  The 
experience  with  this  tax  even  in  the  smaller  communities 
of  Canada  affords  evidence  of  its  defects.  It  is  readily  seen 
that  to  make  the  actual  rental  the  basis  of  levy  is  to  inflict 
an  inordinate  hardship  upon  the  retail  merchants,  for 
example,  whose  rental  is  comparatively  higher  on  account 
of  the  better  location  and  size  of  their  premises.  In  most 
cases,  therefore,  floor  space  has  superseded  rental  as  the 
unit  of  measure  for  the  tax.  But  this  has  necessitated 
generally  an  elaborate  classification  of  the  various  busi- 
nesses, with  a  variety  of  rates  or  assessed  valuations  of 
the  different  classes.  In  Winnipeg,  for  example,  where 
both  methods  of  assessment  have  been  tried,  there  is  dissat- 
isfaction with  the  present  system,  which  makes  an  assumed 
rental  the  basis  of  assessment.^  The  complications  which 
would  arise  in  any  large  American  city,  from  a  classifica- 
tion which  must  be  more  or  less  arbitrary,  are  alone  a 
suflBcient  deterrent  to  the  introduction  of  the  business  tax. 
As  for  the  local  income  tax,  the  diflBdence  shown  in  this 
country  with  regard  to  its  levy  even  for  state  purposes,^ 
and  the  inexpediency  of  taxing  income  locally,  because 
income  is  no  longer  local  in  character,  argue  strongly 
against  its  introduction.'  From  the  administrative  stand- 
point, therefore,  the  most  feasible  of  the  proposed  new 
taxes  is  perhaps  the  habitation  tax.  But  because  of  its 
"regressive"  and  its  unprecedented  character  in  American 
communities  its  institution  will  probably  depend  upon  the 

*  Cf.  Haig,  The  Exemption  of  Improvements  from  Taxation  in  Canada 
and  the  United  States,  pp.  22  ff. 

*  Only  seven  states  have  enacted  income  tax  laws.  Taxation  and 
Revenue  Systems  of  State  and  Local  Governments  (1912),  p.  10. 

*  The  last  objection  would  of  course  lose  its  force  if  the  tax  was  admin- 
istered by  the  state  or  central  jurisdiction  and  the  revenue  apportioned 
among  the  local  governments. 


LAND-VALUE  TAX  IN  UNITED  STATES      445 

urgency  of  the  fiscal  stress,  and  the  effectiveness  of  the 
other  changes,  namely,  classification  and  separation,  to 
relieve  the  pressure  of  the  growing  budgets. 

§  10.  There  is,  however,  one  alternative  method  of 
raising  more  revenue.  That  is  to  increase  the  tax  on  real 
property.  That  the  latter  is  already  heavily  burdened  has 
been  shown  above.  ^  But  the  increase  of  burden  would 
occasion  less  opposition,  were  it  not  for  the  fact  that  the 
charge  falls  as  heavily  on  the  tenant  as  on  the  landowner. 
To  raise  the  rate  of  impost  is,  therefore,  to  hinder  building 
operations  and  to  aggravate  the  general  condition  of  con- 
gestion in  urban  communities.  Hence  the  growing  popu- 
larity of  the  tax  on  land  value. 

The  tax  on  land  value  is  in  reality,  then,  no  new  source 
of  revenue;  the  untaxing  of  buildings  is  intended  rather  to 
free  the  way  to  put  a  heavier  charge  upon  the  land.  To 
the  extent  that  this  is  confiscatory  and  too  discriminatory 
its  adoption  in  this  country  is  remote.  In  so  far,  however, 
as  the  tax  on  land  value  involves  the  untaxing  of  buildings 
without  over-burdening  the  landowner  its  expediency  will 
appeal  to  the  general  public.  Now,  under  what  circum- 
stances is  the  proposal  in  the  latter  sense  feasible? 

First,  the  relation  of  the  separation  of  the  state  and  local 
sources  of  revenue  to  the  tax  on  land  value  has  been  pointed 
out.  The  dependence  of  the  two  reforms  is  reciprocal. 
While  the  separation  of  sources  tends  to  facilitate  the 
introduction  of  the  tax  on  land  value,  the  latter  pre- 
supposes and  would  be  inexpedient  without  separation. 
The  reason  is  as  follows:  the  exemption  of  improvements 
from  taxation  would  impose  an  unequal  burden  upon  land 
owners  in  rural  and  urban  communities  respectively.  As  a 
matter  of  fact,  since  the  relative  value  of  the  land  and 
improvements  varies  in  the  different  counties,  cities,  vil- 
lages, and  rural  districts,  a  state  tax  on  land  value,  unless 
apportioned  among  the  local  governments  according  to 
*  Supra,  §  3. 


446  THE  TAXATION  OF  LAND  VALUE 

expenditure,^  would  have  no  possibility  of  enactment. 
For  example,  in  Minnesota,  the  remission  of  the  tax  on 
structures,  according  to  the  Tax  Commissioner's  estimate,^ 
would  necessitate  an  average  increase  in  the  tax  rate  of 
12.6  per  cent  in  the  rural  districts  (where  the  land  far 
exceeds  the  improvements  in  value),  and  an  increase  of 
103.75  per  cent  in  the  cities.  It  is  evident  how  onerous  such 
an  exemption  of  improvements  would  be,  if  a  uniform  rate 
were  struck  for  state  purposes. 

If,  however,  the  municipalities  should  receive  the  quota 
from  the  property  tax  now  accruing  to  the  state,  the  tax 
rate  under  the  new  system  could  be  reduced  to  that  degree. 
That  the  relief  from  separation  will  not  be  significant  will 
appear  from  the  following  considerations.  In  1902,  about 
eleven  per  cent  of  the  total  receipts  from  the  general  prop- 
erty tax  in  the  country  constituted  the  state  levy.'  But  it 
must  be  remembered  that  the  exemption  of  personalty 
which  may  be  expected  to  accompany  the  proposal  to 
untax  buildings  will  largely  offset  this  source  of  relief. 
Moreover,  this  relief  will  not  apply  to  the  states  where 
separation  is  now  wholly,  or  approximately,  in  force.  To 
what  degree  separation  will  prevent  an  additional  burden 
from  falling  upon  site  value  will  depend  upon  the  condi- 
tions in  the  various  communities. 

For  this  reason,  the  desirability  of  local  option  has  been 
advocated.  Aside  from  the  unequal  distribution  of  burden 
upon  rural  and  urban  districts  to  be  thereby  obviated, 
there  is  a  further  reason  for  local  option.  There  are  muni- 
cipalities where  the  value  of  the  land  tends  to  increase 
rapidly.  These  are  the  local  bodies  where  the  untaxing  of 
the  buildings  could  be  instituted  without  the  imposition  of 

*  Cf.  Seligman,  Essays  in  Taxation  (1913),  pp.  358  jf. 

'  Third  Biennial  Report  of  the  Minnesota  Tax  Commission,  pp.  178-79. 

*  Taking  the  United  States  as  a  whole,  51.7  per  cent  of  all  the  state 
revenue  in  1902  consisted  of  the  general  property  tax  yield.  United  States 
Census  (Special  Report),  Wealth,  Debt,  and  Taxation  (1907),  p.  968. 


LAND-VALUE  TAX  IN  UNITED  STATES       447 

a  heavier  burden  on  the  land.  And  if  there  be  a  grain  of 
truth  in  the  contention  that  the  untaxing  of  buildings  will 
stimulate  business  and  industry  and  attract  population, 
this  tendency  of  rising  land  value  will  even  be  accelerated 
to  the  advantage  of  the  landowner.  Here,  indeed,  we  must 
call  attention  to  the  fear  expressed  by  some  that  under 
local  option  the  tax  on  land  value  might  be  employed  by 
municipalities  as  a  means  to  attract  business  and  popula- 
tion from  rival  cities.  Without  denying  the  possibility  of 
misusing  complete  home  rule  in  taxation,  the  argument 
is,  nevertheless,  an  admission  of  the  wholesomeness  and 
expediency  of  the  new  system.  The  movement  to  exempt 
machinery  from  taxation  in  American  cities^  is  dominated 
by  the  same  motive,  namely,  to  attract  and  encourage 
industry.  And  why  should  not  a  wholesome  tax  system, 
or  in  fact  any  civic  institution,  be  used  as  a  bonus  to  out- 
side industry,  just  as  an  endowment  by  leading  citizens  is 
often  used  to  lure  an  industry  to  a  city?  If  business  will 
thrive  better  where  improvements  are  not  taxable,  the 
latter,  if  other  considerations  allow,  might  be  exempted 
with  advantage.  Least  of  all  has  the  landlord  great  cause 
to  complain,  for  whatever  enhances  the  industrial  pros- 
perity of  the  town  causes  his  land  to  appreciate  in  value.* 
A  third  consideration  bearing  upon  the  problem  of  the 
untaxing  of  buildings  without  levying  an  excessive  tax  on 
land  arises  from  the  underlying  requirements  of  the  new 

*  See  infra,  §  12. 

*  It  is  interesting  in  this  connection  to  show  how  readily  the  business 
world  and  especially  the  realty  operators  respond  to  a  reform  which 
promises  to  promote  prosperity.  This  explains,  perhaps,  the  great  and 
often  favorable  comment  on  the  so-called  Single  Tax  in  realty  journals, 
such  as  the  Real  Estate  Magazine.  For  example,  there  appeared  in  the 
Wall  Street  Journal  (May  14,  1914)  an  article  in  praise  of  the  Houston 
(Texas)  Plan  of  Taxation  because  of  its  efiFect  on  "boosting"  the  town. 
The  plan  is  partially  the  tax  on  land  value  (see  infra,  §  12).  In  view  of 
the  agitation  concerning  the  tax  in  New  York  City,  however,  the  article 
could  not  stand  unassailed.  Hence  Allan  Robinson's  very  effective 
criticism  of  the  Houston  experiment  in  the  Wall  Street  Journal  of  May  23, 
1911. 


448  THE  TAXATION  OF  LAND  VALUE 

system,  namely  full-value  assessments  and  annual  revalua- 
tions. In  view  of  the  prevailing  underassessment  of  real 
property  for  taxing  purposes,  expert  valuation  and  assess- 
ment at  full  market  value  would  swell  the  assessment 
roll;  and  if  revaluation  were  made  frequently  enough,  pref- 
erably annually,  the  increments  of  land  value  in  urban 
communities  would  also  augment  the  proceeds  of  the  tax. 

Fourthly,  it  might  be  found  expedient  to  reduce  the  rate 
on  buildings  as  compared  with  that  on  land,  or  to  untax 
buildings  altogether,  covering  the  deficit  in  revenue 
through  the  levy  of  other  taxes.  If  the  choice  lay  between 
the  old  realty  tax  and  the  new  proposed  additional  tax 
on  habitation,  business,  or  income,  few  would  decide  for 
the  latter,  for  the  reasons  already  set  forth.  If,  however, 
the  tax  could  be  removed  from  buildings,  by  the  substitu- 
tion of  special  and  franchise  taxes,  and  of  a  more  extended 
licensing  system,  much  could  be  said  in  favor  of  such 
exemption. 

§  11.  Speaking  generally,  however,  there  are  but  few 
municipalities  in  this  country  where  the  tax  on  land  value 
would  not  impose  a  heavier  charge  on  the  property- 
holder  than  under  the  realty  tax.  The  relative  value  of 
land  and  buildings  will  determine  the  amount  of  added 
burden.  In  general  it  may  be  said:  (1)  that  there  are  few 
urban  and  rural  communities  where,  if  the  reform  were 
complete,  an  increase  of  one  hundred  per  cent  in  the  tax 
rate  would  be  necessary,  since  such  an  increase  would 
imply  that  the  value  of  the  improvements  exceeds  the 
value  of  the  land;  (2)  that  there  are  only  a  few  localities, 
where  the  rise  in  land  value,  and  the  relatively  greater 
value  of  the  land  than  the  buildings  would  occasion  no  in- 
crease in  the  tax  rate;  (3)  that  in  the  majority  of  local 
governments,  some  advance  in  rate  would  be  needed,  the 
increase  varying  from  a  few  mills  to  one  or  two  per  cent.^ 

*  In  the  case  of  New  York  City,  we  estimated  an  increase  in  the  tax 
rate  of  over  eleven  mills.  C/.  supra,  p.  343,  footnote. 


LAND-VALUE  TAX  IN  UNITED  STATES      449 

Again  we  must  call  attention  to  the  fact  that,  in  spite  of 
the  higher  tax  rate,  the  landowner  will  not  necessarily  find 
his  tax  bill  higher.  The  distribution  of  the  shifted  charge 
will  fall  unequally.  A  little  reflection  shows  that  the  tax 
on  land  value  puts  a  premium  upon  improved  land.  The 
proprietor,  therefore,  who  has  expended  more  on  improve- 
ments than  on  the  value  of  the  site,  will  profit  at  the  ex- 
pense of  the  owner  of  vacant  property.  Since  the  ground 
owner  in  this  country  is  in  most  cases  the  proprietor  of  the 
improvements  as  well,  it  is  evident  that  many  of  them 
might  be  relieved  by  the  change  rather  than  burdened. 
This  assumes,  however,  that  the  proprietor  is  also  the 
occupier  of  the  building,  or  that  the  remission  of  the  tax  on 
buildings  will  not  fall  to  the  benefit  of  the  tenant  in  re- 
duced rents.  ^ 

Take  New  York  City,  for  example.^  Less  than  six  per 
cent  of  the  famiUes  In  Manhattan  live  in  their  own  houses. 
In  the  other  four  boroughs  the  percentage  will  of  course  be 
much  greater.  Some  of  these  owner-occupiers  in  Man- 
hattan would  probably  enjoy  a  reduction  in  taxes;  these 
would  comprise  the  owners  of  the  finest  residences  in  that 
borough.  The  occupiers  of  the  average  single  family  house, 
according  to  Dr.  Haig,  would  find  their  tax  bill  increased, 
because  the  value  of  the  land  in  Manhattan  is  excessive  as 
compared  with  the  cost  of  the  ordinary  dwelling  house. 
In  the  other  boroughs,  however,  the  owner  of  his  residence 
would  generally  have  less  taxes  to  pay.  The  relief  accruing 
to  such  owner,  however,  might  be  counterbalanced  by  the 
reduced  value  of  his  property  which  is  another  probable 
effect  of  the  introduction  of  the  tax.  The  last  consideration 

*  Frictional  forces,  we  have  seen,  may  prevent  the  shifting  from  taking 
place. 

*  Dr.  Haig  has  worked  out  the  probable  distribution  of  burden  that  the 
reduction  of  the  tax  on  buildings  by  fifty  per  cent  would  occasion  in 
New  York  City.  In  this  section  we  reproduce  his  conclusions.  Cf.  Haig, 
Some  Probable  Effects  of  the  Exemption  oj  Improvements  from  Taxation  in 
the  City  of  New  York,  pp.  1S88  Jf  . 


450  THE  TAXATION  OF  LAND  VALUE 

does  not  seem  important  in  the  case  of  the  home-owner 
who  in  general  may  be  expected  to  remain  in  possession. 

In  the  case  of  the  owners  who  let  their  houses  the  reduc- 
tion of  the  tax  on  buildings  should  theoretically  fall  to  the 
profit  of  the  tenant;  but  to  the  extent  that  friction  will 
hinder  the  transmission  of  the  benefit,  the  remission  of  the 
tax  will  rather  relieve  the  landlord,  provided  the  value  of 
the  improvement  on  the  land  exceeds  the  average  ratio 
between  the  site  and  building  values  for  the  whole  taxing 
jurisdiction.  Now,  in  New  York  City,  where  rented  apart- 
ments and  houses  are  the  rule,  the  landowner  would  find 
his  tax  bill  reduced  or  increased  according  to  the  value  of 
the  improvements  on  the  site.  On  the  average  the  value  of 
the  building  tends  to  exceed  the  value  of  the  land  in  the 
three  boroughs,  Brooklyn,  Bronx,  and  Richmond;  for  Man- 
hattan and  Queens  the  contrary  is  true.  In  the  latter 
borough  the  large  number  of  vacant  and  undeveloped 
parcels  of  land,  in  Manhattan  the  proportionately  greater 
land  value,  will  increase  the  burden  of  the  property  holder. 
"Houses  in  Manhattan  would  usually  pay  higher  taxes 
while  those  in  other  boroughs  would  pay  lower  ones.  In 
Manhattan  the  more  expensive  parcels  in  the  samples 
would  receive  decreases;  in  the  Bronx  the  less  expensive 
ones.  Tenements  in  one  portion  of  Manhattan  would  pay 
greater  taxes  while  those  in  other  sections  would  pay 
smaller."  ^  The  important  conclusion,  as  pointed  out  by 
Dr.  Haig,  is  this:  In  so  far  as  indirect  benefits  may  be  ex- 
pected to  follow  the  new  system  and  to  raise  the  value 
of  the  land,  and  in  so  far  as  the  owner  is  the  occupier  or 
user  of  improved  property,  he  will  gain;  but  as  ground 
owner  he  will  have  higher  taxes  to  pay  on  his  land.  There- 
fore, unless  other  changes  in  the  tax  system  accompany  the 
untaxing  of  buildings,  the  landowner  alone  will  be  discrim- 
inated against  by  the  change. 

§  12.  Until  recent  years,  the  proposal  of  the  tax  on  land 
*  Haig,  The  Exemption  of  Improvements,  etc.,  p.  134. 


LAND-VALUE  TAX  IN  UNITED  STATES      451 

value,  confounded  with  the  Single  Tax,  remained  a  dead 
issue  in  this  country.  Only  with  the  widespread  reaction 
against  the  existing  system  of  taxation  is  the  question 
coming  to  the  front.  At  this  time,  indeed,  when  the  more 
immediate  and  urgent  tax  measures  are  pressing  for  adop- 
tion, the  activity  of  the  Single  Taxers  in  the  propaganda  of 
the  tax  on  land  value,  insignificant  as  their  organization  is, 
is  noteworthy.^  Their  advocacy  of  the  tax  on  land  value 
is  entirely  opportunistic;  that  is,  the  Single  Taxers  view 
the  land-value  tax  as  the  entering  wedge.  It  may  well  be, 
however,  that  the  Single  Tax  bugbear  will  retard  rather 
than  promote  the  adoption  of  the  tax  on  land  value. 

Nowhere  in  this  country  thus  far  has  the  attempt  been 
made  to  introduce  the  tax  on  land  value  in  its  entirety. 
Most  of  the  legislation  which  sought  to  exempt  improve- 
ments gradually  has  met  with  failure.  Only  a  few  instances 
of  success  in  introducing  the  partial  exemption  of  improve- 
ments are  recorded  as  the  following  summary  of  the  legis- 
lation will  make  clear. 

That  attempts  to  introduce  the  tax  should  be  made  in 
states  having  the  initiative  and  referendum  is  not  strange. 
The  reform  was  made  part  of  the  election  campaigns  in 
Oregon,  Washington,  and  Missouri,  and  the  referendum 
propaganda  was  assisted  by  the  Joseph  Fels  Fund  ^  organ- 
ized for  the  promotion  of  Single  Tax  legislation  in  the 
United  States.  The  defeat  of  the  measures  in  Oregon  have 
been  mentioned.'  In  Washington  it  was  no  different.  In 
accordance  with  a  constitutional  amendment  in  that  state, 
cities  are  empowered  to  draft  their  own  charters.  In  1911, 

*  It  is  to  the  credit  of  the  Single  Taxers  that,  more  consistent  than 
some  of  their  opponents,  they  do  not  urge  the  immediate  adoption  of  their 
Utopian  system  in  toto;  but  they  are  confident  that  the  success  of  partial 
exemption  of  improvements,  full-value  assessments,  etc.,  will  further 
their  complete  system. 

'  Mr.  Fels  contributed  a  sum  equal  to  all  the  other  contributions  to  the 
Fund.  Cf.  Joseph  Fels  Fund  Bulletin  (1913). 

*  See  supra,  p.  438. 


452  THE  TAXATION  OF  LAND  VALUE 

accordingly,  an  amendment  to  the  city  charter  of  Everett 
was  proposed  and  adopted  providing  for  the  exemption  of 
improvements  for  local  purposes  to  the  extent  of  twenty- 
five  per  cent  of  their  value  in  1912  and  1913,  to  fifty 
per  cent  in  1915,  to  seventy-five  per  cent  in  1916  and  their 
total  exemption  thereafter.^  In  spite  of  the  afiirmative 
vote,  the  city  commission  of  Washington  decided  to 
exclude  the  amendment  from  the  new  charter,  but  to 
submit  it  as  a  supplementary  proposal  to  the  charter. 
This  amendment,  submitted  to  a  referendum  vote  in 
March,  1912,  was  defeated.  At  the  November  election  of 
the  same  year,  however,  the  proposal  was  carried  in  every 
ward,  the  vote  standing  4200  in  favor  to  2200  against.^ 
The  amendment  to  the  Seattle  charter  fared  differently. 
Adopted  by  the  city  council  in  December,  1911,  the 
measure  was  submitted  to  the  people  the  following  March 
only  to  be  defeated  by  a  vote  of  about  12,000  to  28,000. 
Another  proposal  for  the  gradual  exemption  of  improve- 
ments introduced  by  Councilman  Erickson  met  the  same 
fate  as  the  first.' 

In  Missouri  the  attempt  of  the  Equitable  Taxation 
League*  and  of  the  Civic  League  of  St.  Louis,^  in  1912,  to 

»  The  Public,  November  24,  1911,  p.  1194;  May  8,  1912,  p.  422; 
November  15,  1912,  p.  1091. 

*  The  fate  of  this  measure  is  undecided.  The  oflBcials  declaring  it  to  be 
unconstitutional  have  not  put  it  in  operation.  Cf.  Haig,  The  Exemption 
of  Improvements,  etc.,  p.  258. 

»  The  Public,  January  15,  November  22, 1912;  March  14, 1913. 

*  This  league  was  instrumental  in  obtaining  80,000  signatures  to  the 
initiative  petition.  See  ibid.,  August  28,  and  July  12,  1912. 

'  Report  of  the  Municipal  Finance  and  Taxation  Committee  of  the  Civic 
League  of  St,  Louis  on  the  Taxation  Amendments  to  the  State  Constitution 
of  Missouri  to  be  submitted  November,  1912. 

Section  1  of  the  proposed  amendment  provided:  that  "all  property 
now  subject  to  taxation  shall  be  classified  for  purposes  of  taxation  and  for 
exemption  from  taxation  as  follows:  — 

"  Class  one  shall  include  all  personal  property.  All  bonds  and  public 
security  of  the  State,  and  of  the  political  subdivisions  and  municipalities 
thereof,  now  or  hereafter  issued  shall  be  exempt  from  all  taxes  and  all  per- 
sonal property  shall  be  exempt  from  all  taxes,  State  and  local,  in  the  year 


LAND-VALUE  TAX  IN  UNITED  STATES      453 

amend  the  constitution  providing  for  the  gradual  exemp- 
tion of  improvements  and  the  exemption  of  personal  prop- 
erty failed.  After  a  vigorous  campaign,  the  measure  was 
defeated  by  a  large  majority.^ 

While  this  referendum  and  active  propaganda  terminated 
in  defeat,  the  first  step  toward  the  taxation  of  land  value 
has  been  taken  by  a  few  municipalities,  without  the 
publicity  of  which  we  have  just  spoken.  In  Houston, 
Texas,  the  tax  commissioner,  J.  J.  Pastoriza,  a  disciple  of 
Henry  George,  upon  assuming  office  in  1911  decided  to 
introduce  some  changes.  Texas  is  hampered  by  the  con- 
stitutional provision  which  requires  uniformity  in  the 
taxation  of  all  property,  tangible  and  intangible.  Pastor- 
iza's  predecessors  had  violated  this  provision,  and  Pastoriza 
decided  that  he  would  also,  but  in  another  way.  First  he 
had  the  Somers'  system  of  valuation  introduced  and  then 
fixed  the  assessment,  so  that  land  was  assessed  at  its  "fair" 
value, '^  and  improvements  at  twenty-five  per  cent  of  their 
actual  value,  or  cost  of  reproduction.  Personal  property 

1914  and  thereafter,  provided  that  nothing  in  this  amendment  shall  be 
construed  as  limiting  or  denying  the  power  of  the  State  to  tax  any  form 
of  franchise,  privilege  or  inheritance. 

"  Class  two  shall  include  all  improvements  in  or  on  lands,  except 
improvements  in  or  on  lands  now  exempt  from  taxation  by  law.  In  the 
year  1914  and  1915,  all  property  in  class  two  shall  be  exempt  from  all 
taxes.  State  and  local,  to  the  extent  of  one-fourth  of  the  assessed  value  of 
such  property;  in  the  years  1916  and  1917,  to  the  extent  of  two-fourths; 
in  1918  and  1919  to  the  extent  of  three-fourths;  and  in  the  year  1920 
and  thereafter,  all  property  in  class  two  shall  be  exempt  from  all  taxes. 
State  and  local;  provided,  however,  that  in  the  year  1914  and  thereafter, 
the  improvements  to  the  extent  of  $3000  in  assessed  value  on  the  home- 
stead of  every  householder  or  head  of  a  family  shall  be  exempt  from  all 
taxes.  State  and  local."  The  Public,  November  1, 1912,  pp.  1035-36. 

^  The  amendment  was  opposed  most  strenuously  by  the  agricultural 
population  of  the  state.  CJ.  The  Public,  September  13,  and  November  15, 
1912,  p. 1091. 

*  That  is  Pastoriza's  statement.  See  The  Public  (February  20,  1914), 
p.  179;  (June  12,  1914),  p.  557.  Fair  means  about  seventy  per  cent. 
The  buildings  were  assessed  at  thirty-three  per  cent  of  their  value  in 
1912  and  1913,  and  at  twenty-five  per  cent  in  1914.  Cf.  Haig,  The 
Exemption  of  Improvements,  etc.,  p.  244. 


4M  THE  TAXATION  OF  LAND  VALUE 

continued  to  be  taxed,  but  no  attempt  was  made  to  reach 
it.  Bank  deposits,  credits,  and  house  furnishings  were  not 
taxed.  The  reform  consisted,  therefore,  in  estabHshing  an 
expert  and  more  equal  valuation  of  the  land,  and  in 
reducing  the  rate  on  buildings  to  about  36  per  cent  of  that 
on  land. 

According  to  the  Tax  Commissioner  ^  and  the  Single 
Taxers,  very  noteworthy  results  have  ensued.  First,  the 
total  assessments  were  raised  from  64  million  dollars  in 
1910  to  94  millions  in  1912;  and  it  is  claimed  that  by  this 
change  the  tax  rate  had  been  reduced  from  $1.70  to  $1.50. 
As  a  result  of  the  readjustment  in  valuation  and  assess- 
ment over  5000  owners  paid  less  taxes  in  1912  than  in 
1910.^  Secondly,  building  operations  have  been  enor- 
mously stimulated.  The  number  of  building  permits  during 
the  first  six  months  of  1912  showed  an  increase  of  55  per 
cent  over  the  corresponding  period  in  1911.^  Thirdly,  Mr. 
Pastoriza  claims  that  the  partial  exemption  of  improve- 
ments has  lowered  house  rents.*    Fourthly,  the  general 

^  In  spite  of  the  agitation  among  his  opponents,  Mr.  Pastoriza  has  been 
twice  reelected  by  a  large  majority.  According  to  J.  Pastoriza  the 
population  of  Houston  since  1910  had  increased  by  25,000.  (See  Wall 
Street  Journal,  May  14,  1914.)  His  friends  set  it  even  higher.  (The 
Public,  January  9,  1914,  p.  81.) 

«  The  Public,  June  21,  March  29,  August  23, 1912. 

»  Ibid.,  June  12,  February  20,  1914.  The  reports  of  the  building 
insi)ectors  present  even  a  more  favorable  showing  than  the  statement 
quoted.  The  following  shows  the  valuation  of  building  permits  before 
and  after  the  adoption  of  the  Houston  Plan.  (Statement  of  financial 
statistics  furnished  the  writer  by  J.  J.  Pastoriza.) 

Year  Valuation  Year  Valuation 

1910 $3,695,145  1913 $5,432,265 

1911 3,685.468  1914 4,044,367 

1912 5,142,352  1915 2,418,693 

*  These  are  his  words: "  The  exemption  of  buildings  from  taxation  to  the 
amount  of  seventy-five  per  cent  of  tneir  value  has  had  the  effect  to  lower 
rents,  which  is  only  another  way  of  saying  that  it  has  raised  wages.  The 
following  is  a  short  list  of  houses  (there  are  many  more)  showing  the 
amount  of  reduction  in  rent  since  the  Houston  Plan  of  Taxation  has  been 
in  existence.  The  plan  has  caused  many  new  houses  to  be  erected,  thus 


LAND-VALUE  TAX  IN  UNITED  STATES      455 

progress  of  the  city  is  thought  to  owe  something  to  the 
Houston  Plan  of  Taxation.^  Statistics,  indeed,  bear  out 
the  statements  of  Pastoriza,  but  they  do  not  reveal  the 
cause  of  the  remarkable  progress  made  by  Houston.  The 
popularity  of  this  illegal  reform,  nevertheless,  indicates  its 
general  soundness.^  This  interesting  experiment  has,  how- 
ever, been  cut  short  by  the  recent  court  decision  declar- 
ing the  method  of  taxation  in  Houston  illegal.' 

Another  example  of  reform  in  the  same  direction  was 
the  enactment  of  the  Stein  Bill  *  in  Pennsylvania  providing 
for  the  gradual  exemption  of  improvements  from  taxation 
in  second  class  cities,  i.e.,  in  Pittsburgh  and  Scranton. 
Especially  significant  is  this  legislation  for  Pittsburgh, 

creating  competition  and  changing  the  condition  which  existed  before 
the  Houston  Plan  of  Taxation  was  inaugurated.  Before  that  time  there 
were  two  or  three  tenants  for  every  house  that  was  newly  built;  as  a  result 
house  rent  jumped  to  the  skies.  Now  there  is  never  more  than  one 
tenant  after  a  house  when  it  is  completed,  and  sometimes  not  that.  The 
result  is  that  the  owners  of  houses,  being  anxious  to  rent,  have  reduced 
the  rent  until  the  revenue  derived  from  improved  property  does  not 
exceed  very  much  the  interest  which  you  can  get  for  money  in  the  open 
market.  I  will  ask  if  this  is  not  a  good  thing  for  the  people  of  our  city?  " 
Quoted  from  The  Public.  June  12,  1914,  p.  557. 

*  Allan  Robinson,  President  of  the  Allied  Real  Estate  Interests, 
attempted  to  refute  some  of  the  claims  of  Pastoriza  with  regard  to  the 
effects  of  the  tax.  {Wall  Street  Journal,  May  23,  1914.)  To  the  state- 
ment that  the  bank  deposits  had  increased  in  Houston  about  seven 
millions  of  dollars  from  1911  to  1912,  Robinson  quotes  figures  to  prove 
that  other  cities  in  Texas  show  similar  gains.  Taking  all  the  facts  into 
consideration  Houston  does  show  remarkable  progress  for  a  city  of  its 
size. 

'  "  The  people  have  expressed  themselves  universally  as  being  satis- 
fied with  the  Houston  Plan  of  Taxation,  and  I  believe  that  if  the  matter 
was  submitted  to  a  vote  of  the  people,  over  90  per  cent  of  them  would 
vote  in  favor  of  it."  (From  Report  of  Tax  Commissioner  (1914),  in  City 
Book  of  Houston,  p.  97.)  Although  this  estimate  may  be  judged  extrava- 
gant, yet  Mr.  Pastoriza  has  been  elected  again  and  again  on  the  platform 
of  retaining  the  illegal  system  he  has  introduced.  Cf.  Haig,  The  Exemp- 
tion  of  Improvements,  pp.  243,  251  ff. 

*  Decision  rendered  by  Judge  Read,  of  the  Texas  State  District  Court, 
at  Houston  on  March  2.   The  Public,  March  12,  1915,  p.  260. 

*  H.R.  967.  Passed  in  May,  1913;  approved  May  15.  Pennsylvania, 
1913,  No.  147. 


456  THE  TAXATION  OF  LAND  VALUE 

where  until  1911  property  was  assessed  according  to  a 
classification  made  in  1867,  the  land  being  divided  into 
three  categories,  agricultural,  rural,  and  full  city  land.^ 
The  Act  of  1913  provides  that  the  assessment  on  buildings 
shall  be  reduced  to  ninety  per  cent  of  their  actual  value  the 
first  year,  to  be  followed  by  a  further  reduction  of  ten  per 
cent  every  third  year,  until  after  fourteen  years  the  exemp- 
tion will  be  only  fifty  per  cent.  If  not  repealed,  this  legis- 
lation may  after  a  few  years'  operation  serve  as  an  object 
lesson  to  other  states. 

A  few  more  isolated  instances  where  the  principle  of 
exemption  of  improvements  is  in  force  could  be  mentioned, 
as  for  example,  Pueblo,  Colo.,  and  Modesto,  Cal.  The 
latter  is  an  irrigation  district.  A  few  more  irrigation  dis- 
tricts in  the  San  Joaquin  Valley  took  advantage  of  the 
California  state  law  to  pay  for  the  irrigation  projects  by  a 
special  assessment  on  land  value.  The  results  of  the  new 
system  there  are  said  to  be  noteworthy.  ^  In  Pueblo,  the 
initiative  petition  to  amend  the  city  charter  providing  for 

^  The  first  kind  paid  one-third  of  the  prevailing  tax  rate  in  the  ward, 
the  second  kind  two-thirds,  the  last  kind  the  full  tax  rate.  With  revalua- 
tion of  the  land  in  a  growing  city  like  Pittsburgh,  the  effect  of  such  a  sys- 
tem can  readily  be  imagined.  "  Property  for  some  distance  along  one  side 
of  Center  Avenue,  and  also  along  Fifth  Avenue  has  been  classed  'full,' 
paying  the  full  tax  rate,  while  at  the  same  time,  that  on  the  other  side 
of  the  street  has  paid  but  two-thirds  of  the  rate"  —  "it  was  found  that 
the  low  rates  have  been  paid  almost  entirely  by  large  'agricultural'  hold- 
ings and  expensive  residence  properties  while  the  high  rates  have  been 
saddled  upon  small  business  realty,  small  residences,  and  congested 
tenement  neighborhoods."  The  Survey,  July  1, 1911,  pp.  477,  479. 

This  "fiscal  anachronism"  as  some  one  has  well  called  the  system  was 
abolished  in  1911,  and  in  the  same  year  the  legislature  passed  an  Act 
exempting  machinery  from  taxation  in  Pittsburgh  and  Scranton  for 
municipal  purposes.  It  is  claimed  that  Mayor  Magee  saw  the  possibility 
of  the  tax  in  stimulating  industry  and  therefore  had  the  Canadian 
system  investigated.  The  Pittsburgh  Civic  League  aided  and  supported 
him.  Cf.  The  Public,  February  14,  1913,  p.  151.  In  a  pamphlet.  An  Act 
to  Promote  Pittsburgh's  Progress  by  Reducing  the  Tax  Rate  on  Buildinga 
forty  per  cent,  examples  were  cited  showing  that  the  change  would  occasion 
an  increase  in  rate  only  from  fifteen  mills  to  eighteen  mills. 

«  The  Public.  February  27,  1914,  pp.  205-06. 


LAND-VALUE  TAX  IN  UNITED  STATES      457 

the  partial  reduction  of  the  tax  on  buildings  was  adopted 
November  5,  1913,  by  a  majority  of  540.  In  1914,  fifty 
per  cent  of  the  value  of  realty  improvements  and  buildings 
was  to  be  exempt;  in  1915,  ninety-nine  per  cent  was  to  be 
exempt  for  local  purposes.^  After  being  in  operation  two 
years,  the  measure  was  repealed  on  November  2,  1915. 
The  vote  for  adoption,  in  1913,  was  2711  for,  and  2171 
against;  in  1915,  the  vote  cast  was  larger,  3042  against,  to 
8255  for  repeal." 

In  New  York  City  two  thus  far  unsuccessful  attempts 
have  been  made  to  tax  land  value.  The  movement  is 
the  outcome  chiefly  of  the  agitation  for  better  housing.' 
The  Congestion  Commission  of  1910  recommended  a 
decrease  in  tax  rate  on  improvements  and  an  increase  of 
the  rate  on  land  value.  This  recommendation  was  embod- 
ied in  the  Herrick-Schaap  Bill  providing  for  the  gradual 
exemption  of  improvements  to  the  extent  of  fifty  per  cent.* 
The  second  proposal  was  the  levy  of  a  value-increment 
tax.  This  tax  was  recommended  by  the  Commission  on 
New  Sources  of  City  Revenue  appointed  by  Mayor 
Gaynor  in  1911.^  Among  other  taxes  advocated  by  this 
Commission  was  an  annual  increment  tax  of  one  per  cent 
"to  be  perpetual  upon  all  increments  of  land  values  as 
shown  by  comparison  with  the  assessed  valuations  of  the 

»  The  Public,  November  14,  1913,  p.  1089;  Haig,  The  Exemption  of 
Improvements,  etc.,  p.  253. 
»  The  Public,  November  19,  1915.  p.  1122. 

•  The  housing  exhibit  held  in  New  York  City  was  an  attempt  to  bring 
home  to  the  people  the  necessity  of  the  proposed  tax  reform.  CJ.  The 
Survey.  March  15,  1913. 

*  Cf.  Report  of  The  New  York  City  Commission  on  Congestion  of  Popu" 
lotion  (1911),  p.  32.  The  Bill  of  1915  proposed  the  untaxing  of  build- 
ings gradually  so  that  after  a  period  of  ten  years  the  exemption  would 
be  practically  complete. 

'  Report  of  the  Commission  on  New  Sources  of  City  Revenue,  City  of  New 
York  (1913),  p.  6.  The  untaxing  of  buildings  was  again  made  the  subject 
of  investigation  by  the  Mayor's  Committee  on  Taxation  in  New  York 
City  in  1915.  Cf.  Find  Report  of  the  Committee  on  Taxation  of  the  City 
of  New  York  (1916). 


458  THE  TAXATION  OF  LAND  VALUE 

year  1912,  and  to  be  in  addition  to  the  general  tax  levied 
upon  all  real  estate."  ^ 

These  few  attempts  to  introduce  the  partial  untaxing  of 
buildings  may  be  classified  into  three  general  categories. 
The  Oregon,  Washington,  Colorado,  and  Missoui^  move- 
ments were  instigated  largely  by  the  Single  Tax  propa- 
ganda. These  states  are  a  fertile  ^il  for  agitation  because 
of  the  referendum  possibilities.  The  Houston,  Pittsburgh, 
and  Scranton  experiments  must  be  attributed  rather  to  the 
widespread  tendency  in  this  country  to  underassess  im- 
provements, machinery,  etc.  For  example,  in  Minnesota 
"a  custom  has  been  developed  in  the  state  of  assessing 
land  and  improvements  at  different  percentages  of  actual 
value.  Especially  is  this  true  in  the  newer  parts  of  the 
state.  The  argument  has  been  advanced  that  a  heavy 
assessment  is  a  fine  on  improvements."  ^  Under  the  pres- 
ent defective  system  of  assessment  such  illegal  under- 
valuation of  improvements  may  be  assumed  to  be  general. 
Moreover,  the  same  trend  is  evident  in  the  recent  legal 
exemption  of  machinery  and  tools  from  taxation  in  Pitts- 
burgh and  Scranton  (1911)  and  more  recently  in  Phila- 
delphia (1915)."'  The  purpose  in  all  such  cases  is  probably 
to  lighten  the  burden  on  industry.  The  agitation  in  New 
York,  on  the  other  hand,  may  be  regarded  as  the  out- 
growth (1)  of  the  housing  reform  movement,  and  (2)  of 
the  search  for  new  sources  of  revenue  to- cover  the  colossal 
budget.* 

*  In  addition  to  what  has  been  said  in  disapproval  of  a  local  increment 
tax  (see  supra,  §  1),  it  must  be  pointed  out  that  the  great  discontent  in 
New  York  City  with  the  assessed  values  in  recent  years  makes  the  above 
proposal  of  an  annual  increment  tax,  at  least  until  conditions  in  the 
realty  market  change,  very  undesirable  and  inexpedient.  If  levied  on  the 
occasion  of  sale  as  in  Germany  the  computation  of  the  increment  would 
be  much  simpler  and  the  tax  more  equitable. 

'  First  Biennial  Report  of  the  Minnesota  Tax  Commission,  p.  56. 
»  Pennsylvania  (1915),  No.  346. 

*  The  activity  of  the  Society  to  Lower  Rents  has  helped  bring  this 
proposal  before  the  various  tax  committees. 


LAND-VALUE  TAX  IN  UNITED  STATES      459 

As  yet,  with  the  exception  of  a  few  isolated  instances, 
reform  in  local  taxation  in  the  United  States  is  still  in  its 
infancy.  The  prospect  of  the  institution  of  the  tax  on  land 
value  is,  therefore,  remote.  The  momentum  of  the  agita- 
tion to  introduce  the  tax  will  quicken,  however,  as  the  fis- 
cal exigencies  of  the  cities  assert  themselves.  But  judging 
from  the  conservatism  displayed  by  the  people  with  regard 
to  the  referendum  measures  mentioned  above,  the  adoption 
of  the  tax  on  land  value  can  only  be  the  outgrowth  of  the 
general  fiscal  reform  movement,  not  the  vindication  of  the 
Single  Tax  doctrines. 


THE  END 


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INDEX 


Absenteeism,  6,  23,  30,  31,  58-59, 
257-58,  268,  276,  291;  definition. 
89-40,  48,  321-22;  eflfect  of  tax 
on,  81. 

Administration,  in  Australia,  62-67, 
95;  in  Germany,  160-63;  in  Can- 
ada, 274-77;  in  England,  234-38; 
of  property  tax  in  United  States, 
431,  440-42. 

Agricultural  land,  195, 350;  exempt 
from  increment  tax,  215-16;  val- 
uation of,  243;  expediency  of  tax 
on,  344-45,  346,  409,  445-46; 
values,  351-58;  368-69,  385. 

Alberta,  18,  254,  255,  257,  260-61, 
262-63,  265,  270-71,  289,  301. 

Amortization,  13,  192;  principle  of, 
315-17. 

Annual  value,  4  n„  30,  36,  52,  70, 
129,  195,  252,  320-22,  396. 

Australasia,  chaps,  n,  in;  land  ten- 
ure, 6,  20-23,  30,  96/.;  absentee- 

,  ism,  6,  23, 30, 31;  finances,  26-28, 
34;  local  government,  28,  29,  90 
ff.\  building  and  housing  condi- 
tions, 107-15. 

Australian  state  taxes,  41-42;  char- 
acteristics, 23-24,  34,  36/.,  27- 
28,  59-60;  prevalence,  34;  rate 
of,  41-42;  exemptions,  42-43, 
103-05;  assessment  roll,  65-66; 
publicity,  66;  assessment,  68-69. 

Benefit  principle,  30,  49,  91,  122, 

124,  141-43.  160,  251,  252,  269, 

308,  326. 
Berlin,  rental  tax,  123;  transfer  tax, 

126;  congestion,  138,  390-91. 
British    Columbia,   17,   254,    255, 

257,  258-61,  262,  266,  270,  275, 

301. 
Building,  effect  of  tax  on,  107-12, 

248-49,  292-96,  298-99,  311-15, 

397-98,  399,  400,  402-03,  420. 
Building  regulations,  ine£Scacy  of, 

393-94. 


Building-site  tax,  in  Bremen,  125, 
128,  130;  recommended  by 
Housing  Committee,  197. 

Business  tax,  251,  271,  273,  444.   :| 

Calgary,  265,  273,  278,  282,  283, 
286,  290,  293,  294,  297. 

Canada,  Western,  3,  6,  17-18;  local 
taxation,  chap,  vi;  land  tenure, 
254-56;  social  conditions,  253, 
292;  municipal  ownership,  269. 

Canons  of  taxation,  322  /. 

Capital  value,  tax  on;  definition, 
70;  125,  128-29,  157,  223,  252. 
317-18,  320-22. 

Capitalization.  See  Amortization. 

Classification  of  tax,  304-08. 

Classified  property  tax,  in  Germany, 
130;  431-32,  442,  443. 

Cologne,  132-33  n.,  164,  168,  170, 
175,  181. 

Commonwealth  of  Australia,  fed- 
eral tax,  17,  36,  55-59,  60;  Labor 
Party,  55-56;  absenteeism,  56- 
57,  58;  leaseholds,  57;  mortgages, 
58;  rate  of  tax,  58-59,  84-86;  val- 
uation, 76;  revenue  from  tax,  83- 
87;  effect  on  holdings,  98-99. 

Congestion,  108-10,  112-14,  120, 
138,  385,  386,  388-91;  no  prob- 
lem in  Canada,  296;  in  Great 
Britain,  390-91;  in  Berlin,  390- 
91;  causes  of,  391-93;  remedies 
proposed,  410,  411-13,  414;  rela- 
tion to  tax,  395/.,  398,  399-400, 
420. 

Conservation  of  natural  resources, 
366-68,  370,  415-20;  effect  of  tax 
on,  418-20. 

Cost  of  dollection,  of  federal  tax,  86, 
88;  in  New  Zealand,  88,  95. 

Differential  rating,  90-91,  116-17, 

345-46,  445-46. 
Direct  and  indirect  forma  of  tax. 

7/.,  210,  224. 


486 


INDEX 


Discriminatory  tax,  2,  8-9,  25-26, 
44,  66,  59-60,  86,  96,  103,  125, 
196,  208-09,  223-24,  276,  279- 
80,  290-91,  298,  303,  823,  329, 
409,  445. 

Disintegration  of  large  estates,  96- 
98,  249-50,  297-98,  404,  408-09. 

Edmonton,  17-18,  265,  268,  270. 
272,  273,  282-83,  285-86,  287, 
290,  293,  294. 

England,  3,  17;  land-value  duties, 
chap,  v;  burden  on  landowners, 
190-96;  agricultural  d^ression, 
195;  large  holdings,  406-07; 
Housing  Acts,  411-13. 

Evasion  of  tax,  99-100. 

Everett,  Washington,  451-52,  468. 

Exemption  of  improvements,  40- 

41,  253,  261,  262-66;  causes  of, 
267-«9,  271-73,  277-80,  445, 458; 
principle  underlying,  310-15, 
396,  397;  expediency  of,  446-48. 

Exemptions  from  tax,  in  Australia, 

42,  43, 103-05;  in  Germany,  152- 
65;  167-68;  in  England,  215-16, 
219-21,  226-27. 

Finance  Act  (1909-10),  190/.,  207- 
08,  210. 

Fiscal  adequacy  of  tax  in  Germany, 
170-76,  423;  in  Kiao-chau,  188; 
in  Great  Britain,  244-47,  423;  in 
Canada,  277/.,  299;  during  de- 
pression, 284-89;  327-30. 

Fiscal  adequacy  versus  social  reform, 
326-27,  421,  422. 

Forest  land,  366-68;  values,  367  jf.. 
increment  tax  on,  418;  monopoly, 
416,  418-19. 

Frankfurt  a.  M.,  17, 141 ;  rental  tax, 
123;  increment  tax,  132-34,  144, 
164,  169,  170-71,  173,  180,  411. 

General  property  tax,  1  n.,  12-14, 

122-23,  427,  431 ff. 
Germany,    increment    tax    in,    S; 

chap,  iv;  land  policy,  411. 
Glasgow.  199.  390.  412,  413. 
Graduated,  progressive  tax,  7,  8,  9, 

155,  307,  325. 

Habitation  tax,  445. 

Hamburg,  system  of  rates,  168-69. 


Herbert's  Trustees  case,  241. 
Herrick-Schaap  Bill,  843,  457. 
Hoffman-Neill  Rule,  335-36. 
Home  ownership  in  Canada,  290. 
Housing  problem.  See  Congestion. 
Houston  Plan,  447  n..  453-55,  458. 

Improved  land,  44. 

Improvements,  definition,  70-72; 
value  of,  72-73,  253,  278. 

Incidence  of  tax,  11,  116-17,  181, 
182,  192.  193-94,  290-91;  theory 
of,  309-10,  315. 

Income  tax,  444. 

Increment  duty  in  England,  209, 
211-17,  303,  305;  exemptions, 
215-16;  land  value,  820. 

Increment  tax,  7,  9-1 1 ;  retroactive, 
10,  157,  164-65,  329;  character- 
istics, 121,  131-34,  303;  origin, 
130-34;  imderlying  principles, 
134-43;  in  Germany,  chap,  rv; 
212-17,  303,  305;  local  versus 
imperial,  159-60,  177,  178-79; 
in  Kiao-chau,  187;  in  Alberta, 
261. 

Industrial  depression  in  Canada, 
284/ 

Kiao-chau,  3,  17,  184-89. 
Komraunalabgabengesetz,  124-25, 
130. 

Land  Conference  Report,  243. 
Land  monopoly,  effect  of  tax  on, 

96-103,  396,  419-20;  definition, 

869-70,  416-17;  effect  of,  385; 

extent  of  large  estates,  406. 
Land  nationalization.    See  Single 

Tax. 
Land  policies,  in  Germany,  139-41, 

411,  416-17;  in  England,  411-13, 

417. 
Land  taxes,  11, 12, 14, 122/.,  190- 

96. 
Land  Union,  242  n. 
Land  value,  definition,  2,  4;  rise  in, 

96,  120,  128,  373,  386;  effect  of 

tax  on,  115,  319-20;  urban  and 

rural,  compared,  344-45,  350-51 ; 

causes  of,  368-69. 
Land  value  rating  bills,  200  / 
Leaseholds,  43-44,  46,  67,  73-74, 

203-04,  217/. 


INDEX 


487 


Local  option,  51,  52,  54,  S06.  807, 
S45-46,  434-39,  442,  447; in  Ger- 
many, 124  n.,  129;  in  Canada, 
263.  264,  265,  271. 

Local  taxation,  in  Australia,  24-25, 
28-30,  34,  35,  36,  48-55, 60, 88jf ., 
95-96;  in  Germany,  122/.,  163- 
77;  in  England,  121, 196/.;  com- 
missions on,  196-205. 

London  County  Council,  199. 
London  land  values,  360;  vacant 

land,  380. 
Lumsden  appeal  case,  242-43. 

Manitoba,  254,  255,  257,  265,  266, 
301. 

Mineral  land,  308,  366-68,  416/.; 
values,  367-68;  taxation  of,  419- 
20. 

Mineral-rights  duty,  7,  209,  227- 
33,  305. 310; opposition  to,  227/.; 
proceeds  of,  229;  annual  incre- 
ment tax,  230-32. 

Minerals  as  improvements,  71-72. 

Minus  assessable  value,  241-42. 

Missouri,  452-53,  458. 

Modesto,  Cal.,  456. 

Mortgages,  taxed,  40-41,  43,  46, 
58;  indebtedness,  383-84;  effect 
of  tax  on  loans,  183,  398,  401-02. 

New  Brunswick,  300. 

New  South  Wales,  land  alienation, 
21,  22,  97;  local  government,  29, 
53,  55;  suspension  of  state  tax, 
29,  34,  53.  55;  rating,  29,  35,  53- 
55,  92-95,  96;  proceeds  from  land 
tax,  80.  82,  93;  budget,  89-90; 
exemptions,  103. 

New  York  City,  realty  tax,  14,  15, 
428;  land  value  in,  359-60,  364; 
vacant  land,  378-80;  probable 
effects  of  tax  in,  449-50;  bills  to 
tax  land  value,  457-58. 

New  Zealand.  17,  34;  land  tenure, 
21-23,  96-97;  state  tax,  24.  36- 
41, 101-02;  local  rates,  35,  50-52, 
95;  absentee  tax,  39-40,  81 ;  valu- 
ation system,  64,  76,  77;  disinte- 
gration, 96-98;  land  values,  111- 
12;  congestion,  112-14:  rentals, 
117-19. 

Nova  Scotia,  301. 


Overassessment,  275,  288. 
Overbuilding.  111-14,  295-96,  898, 
399-400,  408. 

Personalty  tax,  251,  846,  427-28, 

432/. 
Pittsburgh.  2,  455-56.  458. 
Private  property  in  land,  405  /., 

410,  415-20. 
Progressive  rates.    See  Graduated 

tax. 
Property  transfer  tax,  123,  125-28, 

131/.;  in  England,  246  n. 
Proportional  taxation,  8,  9,  210, 

305,  307,  326. 
Public  appropriation,  405,  408  /.; 

of    urban  land,   411-14;   mines 

and  forests,  417,  420/. 
Pueblo,  Colorado,  456-57,  458. 

Queensland,  land  tenure,  22;  local 
government,  29,  50;  finances, 
29,  89-90,  96;  no  state  land  tax, 
84;  local  rates,  29,  35,  48-50,  90- 
92,  96;  valuation  system,  76; 
building  conditions,  112-13. 

Rates  of  tax,  in  Australia,  87-41, 
44-48,  101  /.;  in  Germany,  155 
/.,  166-68;  in  Kiao-chau,  185- 
86;  in  England,  211,  217,  222, 
227,  230;  in  Canada,  282. 

Realty  tax,  12,  14,  428-30,  439  /., 
442,  445-48;  in  New  York  City, 
14,  15  n.,  428. 

Reichszuwachssteuer,  17,  121,  144- 
63,  167,  173;  proceeds  from,  176; 
amended,  176-77. 

Rent,  effect  of  tax  on,  117-20,  181, 
182,  295,  895  /..  398,  401-02, 
420;  theory  of,  808-09;  factors 
entering  into,  894-95,  401-02. 

Rental  tax.   See  Annual  value. 

Revenue  from  land  taxes,  in  New 
Zealand.  79-81 ;  in  Australia,  81- 
83,  90  /.;  in  England,  245;  allo- 
cation of,  247  n. 

Reversion  duty.  7,  9,  209.  217-22, 
303.  805;  retroactive.  217,  222; 
exemptions  from  218-20;  ambig- 
uous wording,  221-22. 

Saskatchewan,  18,  254,  255,  257. 
262-64,  265,  270,  298,  301. 


488 


INDEX 


Scranton,  2,  455-56,  458. 

Seattle,  Washington,  452,  458. 

Selling  value.   See  Capital  value. 

Separation  of  revenue  sources,  305- 
07,  433-34,  443,  445-46. 

Single  Tax,  confused  with  tax  on 
land  value,  15,  17,  33,  341,  451; 
theory  of,  16,  17,  33,  405;  in 
Canada,  253,  263,  266,  269,  270- 
71,  289,  290,  304;  causes  of 
movement,  267-69. 

Single  Tax  propaganda,  in  Austra- 
lia, 31,  32;  in  Germany,  143-44; 
in  United  States,  438,  451,  458; 
260-67  n. 

Socio-economic  effects  of  tax,  30- 
81,  105-06,  119-20,  420-21,  422; 
in  Australia,  106-20;  in  Ger- 
many, 177-84;  in  Great  Britain, 
247/.;  in  Canada,  291-99. 

Socio-political  theory,  325-26. 

Somers's  system,  337-40,  453. 

South  Australia,  land  tenure,  22; 
rating,  35,  52-53;  state  tax,  41, 
47-48,  80,  82;  absentee  tax,  41- 
42,  47-48;  undervaluation,  77- 
78;  budget,  89-90. 

Special  assessment,  49,  272,  277. 

Speculation  in  land,  137-38, 256-58, 
285-86,  369,  370-87;  effect  of 
tax  on,  114-16,  183-84,  246,  249, 

"  296-98,  396,  398-99,  404,  420; 
results  of,  378  /.,  384-87,  405, 
409-10,  414-17. 

Steuer  nach  dem  gemeinen  Wert. 
See  Capital  value  tax. 

Superassessment,  273,  276,  321. 

Surtax  in  Saskatchewan,  264. 

Sydney,  54-55,  92. 

Tasmania,  land  tenure,  22;  land 
tax,  35,  41, 45-47,  80,  83;  budget, 
89-90. 

Tax  on  land  value,  chap,  i;  dis- 
criminatory, 2,  8-9,  25-26,  303; 
forms  of,  2-3,  7-11,  18,  302;  ex- 
tant, 3,  17-18;  definition,  4,  5, 
7/.;  principles,  5-7,  308/.;  rea- 
son for,  3-4,  16-17,  24-25,  30,  34, 
303;  expediency  of,  303,  324  /., 
421,  451-59. 

Toronto,  300. 

Town     Act     (Alberta),     270-71, 
289. 


Umsatzsteuer.  See  Property  trans- 
fer tax. 

Underassessment,  13-14,  77-78, 
275,  316,  428-31.  432,  441. 

Undeveloped  land,  causes,  378, 
381-82;  385;  in  England,  380-81. 

Undeveloped  land  duty,  7,  209, 
222-27,  305,  321;  opposition  to, 
223-25;  definition,  225;  exemp- 
tions from,  226. 

Unearned  increment,  5-6,  30;  taxa- 
tion of,  130;  principle  of,  135-38, 
348-49. 

Unimproved  value,  75-77;  tax  on, 
see  Tax  on  land  value. 

United  States,  local  tax  problems, 
1  n.,  12-14,  422-23,  424-39;  ex- 
pediency of  tax  on  land  value, 
chap.  X,  346-47;  trend  of  reform, 
439/.;  tax  in,  451-59. 

Urban  land  values,  358  /.,  365-66, 
369,  446,  447;  in  Germany,  136- 
37,  362,  415;  in  Canada,  257; 
causes  of,  358-59,  364-65;  public 
appropriation  of,  410. 

Valuation  of  land,  frequency  of, 
13,  67-68,  441-42;  61-65,  67  /., 
331  /.;  difficulties  of,  61,  330-31; 
system  in  Australasia,  45,  62-65, 
69-77,  103;  accuracy,  77-78, 
132;  in  Germany,  130;  under 
Finance  Act  (Great  Britain), 
211-12,  227,  233-44;  cost  of, 
238-39,  244;  in  Canada,  274-77; 
in  United  States,  332/.;  scienti- 
fic, 333  /.,  440-41;  separate,  of 
land  and  improvements,  203, 
209,  301-03. 

Value  increments  of  land,  253,  256, 
280-84. 

Vancouver,  17-18,  270,  271,  273, 
278,  282,  283,  284,  287,  290,  293, 
294  296  301. 

Victoria  (B.C.),  287,  293,  294, 
296. 

Victoria  (Australia),  land  aliena- 
tion, 22,  97;  state  taxes,  24,  35, 
41,  44,  45;  80,  82-83;  rating,  35; 
exemptions,  42,  43,  104;  valua- 
tion, 45;  budget,  89-90. 

Wages,  effect  of  tax  on,  298,  420. 
Western  Australia,  land  tenure,  22, 


INDEX 


489 


97;  rating,  36;  absentee  tax,  41- 
42;  state  tax,  41,  48,  80,  83;  ex- 
emptions, 42-43;  definition  of 
improved  land,  44;  budget,  89- 
90. 


Wertzuwachssteuer.  See  Increment 

Wild-iand  tax,  17,  258-59,  261-62, 

321. 
Winnipeg,  265,  273,  282,  293,  294. 


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